Tech IPOs are popping. A lot.
All but one of the 15 large tech listings so far this year popped on their first day of trading.
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September 18, 2020
Tech IPOs this year have had to launch in unusual, volatile circumstances. But for the most part, they've got one thing in common: gigantic pops.
Looking at the 15 large tech listings of the year so far (not including Unity, which listed Friday), all but one popped. On average, they ended their first day of trading 81% above their IPO price, and some traded much higher: BigCommerce, which had the biggest pop, tripled in value.
Research from Renaissance Capital suggests that, though pops are normal, this year is particularly abnormal: Across all industries, the average first-day performance has been a 36% rise, well above the historical average of 14%. And Ipreo data shows that tech, with an average gain of 28%, only lags health care in terms of its first-day performance.
The pops have reignited debates about whether the IPO process is broken. Critics argue that companies are leaving money on the table and giving handouts to large institutional investors. Proponents, meanwhile, point out that the first-day trading price might not accurately reflect what an entire IPO block could be sold for. They also point to the risk that investors take on by buying illiquid stock — something that investors in Rackspace, the only tech stock to fall on its first day of trading this year with a 22% plunge, know all too well.
Shakeel Hashim
Shakeel Hashim ( @shakeelhashim) is a growth manager at Protocol, based in London. He was previously an analyst at Finimize covering business and economics, and a digital journalist at News UK. His writing has appeared in The Economist and its book, Uncommon Knowledge.
Politics
'Woke tech' and 'the new slave power': Conservatives gather for Vegas summit
An agenda for the event, hosted by the Claremont Institute, listed speakers including U.S. CTO Michael Kratsios and Texas Attorney General Ken Paxton.
The so-called "Digital Statecraft Summit" was organized by the Claremont Institute. The speakers include U.S. CTO Michael Kratsios and Texas Attorney General Ken Paxton, as well as a who's-who of far-right provocateurs.
Photo: David Vives/Unsplash
January 16, 2021
Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.
Issie Lapowsky (@issielapowsky) is a senior reporter at Protocol, covering the intersection of technology, politics, and national affairs. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University’s Center for Publishing on how tech giants have affected publishing. Email Issie.
January 16, 2021
Conservative investors, political operatives, right-wing writers and Trump administration officials are quietly meeting in Las Vegas this weekend to discuss topics including China, "woke tech" and "the new slave power," according to four people who were invited to attend or speak at the event as well as a copy of the agenda obtained by Protocol.
The so-called "Digital Statecraft Summit" was organized by the Claremont Institute, a conservative think tank that says its mission is to "restore the principles of the American Founding to their rightful, preeminent authority in our national life." A list of speakers for the event includes a combination of past and current government officials as well as a who's who of far-right provocateurs. One speaker, conservative legal scholar John Eastman, rallied the president's supporters at a White House event before the Capitol Hill riot earlier this month. Some others have been associated with racist ideologies.
<p>Government officials listed on the agenda include United States Chief Technology Officer Michael Kratsios and Texas Attorney General Ken Paxton, who is leading a multi-state antitrust lawsuit against Google and is currently <a href="https://www.texastribune.org/2020/11/17/texas-ken-paxton-fbi/" rel="noopener noreferrer" target="_blank">under federal investigation</a>. A source familiar with Kratsios' planned remarks said he intended to speak about artificial intelligence and China. Also on the agenda: Josh Steinman, the White House National Security Council's recently departed senior director for cyber, who now describes himself as the founder of a "stealth startup" on LinkedIn. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>Newly confirmed FCC Commissioner Nathan Simington was also listed on the agenda, but he told Protocol he did not end up attending. "Despite initial plans to do so, I did not attend or otherwise participate in the Claremont event this weekend, and I did not prepare or submit remarks," Simington said. </p><p>The event is happening as Las Vegas <a href="https://lasvegassun.com/news/2021/jan/13/las-vegas-hospital-capacity-crisis-covid-19-soar/" rel="noopener noreferrer" target="_blank">experiences a spike in COVID cases</a>.</p><p>Claremont Institute President Ryan Williams refused to answer Protocol's questions about "the new slave power" panel, what COVID-19 safety protocols are in place during the in-person gathering or the range of speaker backgrounds on the agenda.</p><p>"The Claremont Institute has been a leading voice against political censorship by the Big Tech oligarchs, and we have no interest in commenting on an obvious hatchet job by a publication so clearly beholden to the pieties of Silicon Valley," Williams said in an email to Protocol. "Your questions are riddled with false premises, but we welcome the fire."</p><p>The list of speakers included several people with controversial pedigrees. One speaker, blogger Curtis Yarvin, otherwise known as Mencius Moldbug, has written that there is "no question that biological differences made Africans better slaves than indigenous Americans" because they were less susceptible to tropical diseases. He also once <a href="https://www.unqualified-reservations.org/2007/11/why-i-am-not-white-nationalist/" rel="noopener noreferrer" target="_blank">wrote</a> in a blog post, "although I am not a white nationalist, I am not exactly allergic to the stuff." Yarvin was listed to speak on the panel about "the new slave power," along with Michael Anton, former deputy national security adviser under President Trump, who recently wrote an essay in Claremont's The American Mind publication suggesting that Democrats were "openly talking about staging a coup." </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>Another speaker on the agenda, Adam Candeub, is the current acting head of the National Telecommunications and Information Administration. Previously, as a lawyer, he <a href="https://www.motherjones.com/politics/2020/05/trumps-commerce-department-just-hired-a-lawyer-with-ties-to-white-nationalists/" rel="noopener noreferrer" target="_blank">represented</a> white nationalist Jared Taylor in a lawsuit against Twitter. Eastman recently retired from his position as a law professor at Chapman University amid an <a href="https://www.ocregister.com/2021/01/13/controversial-law-professor-john-eastman-retires-from-chapman-university/" rel="noopener noreferrer" target="_blank">uproar</a> over a speech he gave alleging election fraud at the pro-Trump rally preceding the Capitol attack on Jan. 6.</p><p>One of the final speakers listed on the agenda, Soylent founder Rob Rhinehart, <a href="https://www.nytimes.com/2020/10/28/technology/politics-tech-start-ups-culture-war.html?" rel="noopener noreferrer" target="_blank">made waves earlier this summer</a> with a 5,300-word blog post about why he <a href="https://www.robrhinehart.com/why-i-am-voting-for-kanye-west/" rel="noopener noreferrer" target="_blank">supported hip-hop artist Kanye West</a> for president. "I am so sick of politics. Politics are suddenly everywhere," he wrote, before jumping into a lengthy post about Joe Biden, why the media is "actually evil" and the importance of biofuels. </p><p>One attendee said they had not been given any information on who would be speaking as of midday Friday, hours before the event was set to kick off, and Claremont Institute did not appear to be promoting the event on social media Saturday as the first panels began. "Maybe they're trying to keep it under wraps," the attendee said. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>The attendee said they understood that the tenor of the weekend would be "very critical of tech, very pro some type of intervention."</p><p>"There's going to be some discrepancy and debate around what intervention looks like," the attendee said.</p><p>The other topics on the agenda include a panel on "restoring law" and a fireside chat titled, "What happened?" The summit takes place 10 days after a violent mob of Trump supporters breached the Capitol Hill complex, resulting in five deaths and forcing a reckoning within the Republican Party over its alignment with Trump and right-wing conspiracy theorists.</p>
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Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.
People
Poshmark made ecommerce social. Wall Street is on board.
"When we go social, we're not going back," says co-founder Tracy Sun.
Tracy Sun is Poshmark's co-founder and SVP of new markets.
Photo: Poshmark/Ken Jay
January 14, 2021
Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
January 14, 2021
Investors were keen to buy into Poshmark's vision for the future of retail — one that is social, online and secondhand. The company's stock price more than doubled within a few minutes of its Nasdaq debut this morning, rising from $42 to $103.
Poshmark is anything but an overnight success. The California-based company, founded in 2011, has steadily attracted a community of 31.7 million active users to its marketplace for secondhand apparel, accessories, footwear, home and beauty products. In 2019, these users spent an average of 27 minutes per day on the platform, placing it in the same realm as some of the most popular social media services. This is likely why Poshmark points out in its S-1 that it isn't just an ecommerce platform, but a "social marketplace." Users can like, comment, share and follow other buyers and sellers on the platform.
<p>For the first time since its founding, Poshmark <a href="https://www.sec.gov/Archives/edgar/data/1825480/000119312520320132/d66583ds1.htm" rel="noopener noreferrer" target="_blank">turned a profit</a> in its quarter that ended in June, and was again profitable the following quarter. It makes money by charging sellers a fee: 20% for items over $15, and $2.95 for everything else. And though Poshmark markets itself as a <a href="https://blog.poshmark.com/2020/02/26/the-revival-of-iconic-handbags/" rel="noopener noreferrer" target="_blank">trusted source for luxury items</a> (it provides <a href="https://poshmark.com/posh_authenticate" rel="noopener noreferrer" target="_blank">free authentication</a> for items over $500), the average order value in 2019 was just $33.<br></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>Co-founder and SVP of New Markets Tracy Sun spoke with Protocol soon after Poshmark's market debut. Sun discussed the importance of social commerce, why users are spending so much time on Poshmark, and how the company is investing for long-term growth. </p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>As you went through the IPO process, what were some common questions from investors?</strong></p><p>The main questions we get from investors are about our social commerce marketplace and the magic behind it. Here's the thing: A lot of social networks are tacking on commerce, and a lot of commerce companies are tacking on social. Poshmark is different in that we built our business with social and commerce integrated from the very beginning. This means we are at the forefront of social commerce and this puts us in a leadership position. </p><p>Many people are aware that social commerce is a global phenomenon. So they really want to understand, "How does it work? Where is the momentum coming from? And why have we been able to get to where we are today?"</p><p><strong>What's driving customers to spend those 27 minutes each day on Poshmark? Are customers treating it as a social experience, even if they have no immediate intention of buying?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>Shopping, historically, has always been social. Hundreds of years ago, people wanted to talk to one another about the items they were buying. They wanted to know the people they were buying from. That's just inherent in us in shopping.</p><p>With the rise of ecommerce, all of that engagement and vibrancy that human beings have when they connect with one another got stripped out of shopping. What we see online is the photo of the product and price. What Poshmark does is put all of that vibrancy of social community connections back into shopping.</p><p>To your question of what people are doing on the platform: They are talking to one another; they are getting to know who they're buying from and selling to; they're getting inspiration; they're getting recommendations; they're asking questions about color, fit, sizing and everything else we're accustomed to asking in a social environment. And honestly, this is the way people are shopping today. Gen Z and the younger generations refuse to have one-way communication, they want to be involved, talk to their peers and socialize. So we've built this social marketplace in order to help enable that, and, as a result, help our buyers and sellers thrive.</p><p><strong>There's a fairly large gap between your average selling price of $33 and the authentication threshold of $500. How does Poshmark build consumer trust for customers making purchases below $500?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>Buyer and seller trust is extremely important to us. As you mentioned, we offer authentication services on certain items. There are also a lot of investments we're making — on the human, technology and program side — to protect our community.</p><p>We have machine learning in the background that helps strengthen the integrity of our marketplace. We have a community program where we enable anyone on our site to flag any listings that violate our politics, and our politics are very clearly stated on our site. We also have a team of people who are constantly monitoring listings.</p><p><strong>Poshmark experienced a dip at the onset of the pandemic in March, but then performed really well in the subsequent months. How do you plan on retaining that momentum as the pandemic hopefully subsides?</strong></p><p>There are three trends driving momentum in commerce: the shift online, the shift to social, and the shift to resale or secondhand. Over the past year, those trends that were already there have accelerated. Once we go online, we're not going back. When we go social, we're not going back. These trends are here to stay. </p><p>We see ourselves at the intersection of these trends and the leader at this intersection. We are focused on continuing to build long-term growth. So we started with women's products and added men's and kids'. Last year we added home goods, and most recently we launched beauty. We'll continue to add more categories so that our buyers and sellers can transact with more items, [and] international [expansion]. Then the last one is building enterprise-grade tools and services to support those sellers that are looking to move a high volume of inventory. </p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="4">
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Hirsh Chitkara (@ChitkaraHirsh) is a researcher at Protocol, based out of New York City. Before joining Protocol, he worked for Business Insider Intelligence, where he wrote about Big Tech, telecoms, workplace privacy, smart cities, and geopolitics. He also worked on the Strategy & Analytics team at the Cleveland Indians.
People
Affirm CEO Max Levchin: ‘I see an ocean of opportunities’
The fintech startup's stock soared more than 90% in its IPO debut today.
January 13, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 13, 2021
It was a blockbuster debut for Affirm. The fintech startup's shares soared more than 90% when it went public on Wednesday.
The day itself began quietly for CEO Max Levchin: He kicked it off with a Zoom call with his kids, made a latte for his wife and joined a group chat with some high school friends, one of whom is recovering from COVID-19. "We were very happy to hear that he's doing well," he told Protocol shortly after his startup began trading on the Nasdaq Global Exchange.
<p>Affirm's stock opened at $90.90 after pricing at $49 a share, before climbing to as high as $96.07 in late trades.</p><p>Levchin took some time off to share his thoughts into what the successful trading debut means and what's next for the fintech startup.</p><p><em>The interview has been edited for clarity and brevity.</em></p><p><strong>Quick thoughts on why the stock is rallying?</strong></p><p>I think the market does what it does. I choose to interpret it as, "People love what we stand for beyond the opportunity for financial gain." We have a story to tell, and our story is special. We built a product that actually improves lives in financial services.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p><strong>What were the common questions you were asked by investors in the IPO process?</strong></p><p>The question I heard a bunch — and I enjoyed answering — was: What makes you different? It's a hot space. There are tons of incumbents and a lot of new players. What do you do that makes you special? One big part of it is how much we attach ourselves to the idea of honest financial products, not just an opportunity for profit. It's really powerful, and that's resonated with millions of consumers and thousands and thousands merchants. That's part of our story and we tell it every time.</p><p>We took the time to build a fully universal solution. We will scale with the merchant up and down, something as enormous and complex as Walmart, and as technologically advanced and sophisticated and demanding as Shopify, and literally thousands of brands that we would have only heard of if we were looking for very specific things. We are built by a lot of engineers who are very technology-first. And that allowed us to do things right.</p><p><strong>Some analysts, while acknowledging your growth, also point to the state of the economy. Given that consumers are still facing a lot of uncertainty given the pandemic and the economic downturn, how do you reflect on those concerns?</strong></p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>I think they are justified in the sense that the U.S. economy took a giant step back, in many ways, and yet also transformed itself, in some pretty fantastic ways. We saw the massive acceleration of the offline to online movement in commerce. I think the economy is being forced to modernize itself.</p><p><strong>Are there things in the way the economy has changed over the past year since the pandemic began that worry you, that you feel could be a problem?</strong></p><p>Part of what makes us different and special is we work with our consumers and our merchants to evaluate every transaction. So in many ways, I think our products are more important than ever to consumers. Some of them have lost their jobs, some of them are trying to be a little bit smarter about budgeting and affordability. I think these folks really benefited from Affirm. And we take great pride in helping them navigate the uncertainty and complexity around them. From a more macro view, income inequality is something that our society struggles with and is right to be concerned about.</p><p><strong>What are the biggest challenges for you this year, post-IPO?</strong></p><p>We are fundamentally limited by a number of things we can build and ship in per-unit time. I see an ocean of opportunities, and probably prioritizing them, and being focused and not trying to do everything for the exact same time despite the fact that it feels like we can do so much to help, is probably my personal challenge.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p><strong>What was the toughest part of the IPO process for you?</strong> </p><p>The level of effort and intensity that our team brought to bear to make this happen constantly made me feel like I'm just not working hard enough. The sheer amount of work we were able to do in a shorter period of time was something else. That said, we weren't going to cut corners. We were going to do it right. We were going to go out when we were ready and when the market was ready for us.</p>
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Power
Affirm takes 'buy now, pay later' public today. Investors may balk at the risk.
The San Francisco startup's rise highlights the rapid growth of payment and lending platforms, especially among millennials.
January 13, 2021
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
January 13, 2021
Affirm, the "buy now, pay later" startup, is going public on Wednesday in one of the most anticipated IPOs this year.
Affirm's IPO, which could value the company at a reported $10 billion, highlights the rapid growth of ecommerce and related payment and lending platforms amid the pandemic, as well as new ways that consumers, particularly younger ones, seek to make purchases: Many are eschewing credit cards to avoid going into debt.
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Still, the San Francisco fintech company's debut also turns the spotlight on a trend that one analyst likens to payday loans, a system that makes it easier for consumers to make purchases instantly, but which has also sparked concerns about growing consumer debt in a wobbly economy.
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"They don't like to call it a payday loan, but essentially, that's what it is," IDC analyst Jerry Silva told Protocol. "The trend overall is this ability to do better risk management around credit, and then based on that, to start offering products that we've never seen before."
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</div></p><p>Shares of Affirm opened at $90.90 after pricing at $49, and soared on the Nasdaq, trading at $96.07 as of 2:50 p.m. ET.</p><p>
Affirm, which launched in 2012, is one of the large players in BNPL — as "buy now, pay later" is known. The system lets consumers make online purchases, such as a piece of furniture, a household appliance or an exercise machine, and pay in monthly installments.
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Affirm offers interest-free and interest bearing loans, but says it doesn't charge late or hidden fees. BNPL has taken off mainly among middle-class consumers, including millennials, who are looking for an easier way to make purchases, especially for pricier items. Since the 2008 financial crisis, <a href="https://fortune.com/2018/02/27/why-millennials-are-ditching-credit-cards/" target="_blank">many millennials don't want to use credit cards</a>, so they have looked at other options, Klarna U.S. head David Sykes said.</p><p>
Affirm said more than 6.2 million consumers made roughly 17 million transactions on its platform with more than 6,500 merchants from July 2016 to September 2020. That represented total gross merchandise volume, or total sales transactions on the platform, of $10.7 billion.
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The startup recorded revenue of about $510 million in its fiscal year that ended in June 2020, up 93% year-over-year.
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One of its top rivals, Klarna, which is still private, reported gross merchandise volume of $35 billion for the first nine months of 2020, up 43% year-over-year. The Sweden-based company said it had 11 million U.S. customers and 2 million monthly active app users as of November 2020.
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Silva said advances in technology, especially in AI and big data analytics, are driving the BNPL trend. These new tools are providing merchants and banks a faster, in-depth look at consumers' ability to pay their bills.
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"What's expanding is credit, and we attribute that to the improved performance of AI-based risk models," he said. "When you think about it, credit all comes down to risk. How likely is this person to pay off whatever loan we're giving them?"
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In fact, Affirm and Klarna target consumers with higher credit scores, so their credit risk is relatively low, said Fabrice Grinda, founding partner at FJ Labs, a Klarna investor. Neither company has been significantly affected by the pandemic downturn, he said.
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"Affirm and Klarna are catering to people with high credit scores," he told Protocol. "Those people are doing relatively well — lawyers, doctors, bankers, consultants."
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Affirm's relatively more affluent customer base was highlighted by one fact it disclosed in its IPO filing. The company said its top merchant partner is exercise bike maker Peloton, which comprised roughly 28% of its revenue in the fiscal year ending June 2020.
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Grinda said that even if there were a longer recession that affected this higher-income group, he thinks companies like Affirm and Klarna will be relatively safe.
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But the expansion of BNPL companies at a time of lingering uncertainty due to the pandemic is making some analysts and investors nervous.
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"It's creating too much credit, which is always a big issue in consumer spending countries like the U.S.," said Kenn So, an investor with Shasta Ventures. He said Affirm appears to be doing a good job managing risks and delinquencies, "but with COVID decimating jobs and dragging the economy, I hope BNPL does not lead to excessive purchase behaviors."
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Jonah Crane, a partner at investment firm Klaros Group, said "fraud and chargeback risks loom large" in BNPL.
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"The ability of companies like Affirm to manage that risk appropriately is going to be absolutely critical to survive," he told Protocol. This is particularly important in a system in which customers typically are making a one-off transaction: "That's a challenging thing, from a fraud risk perspective, to deal with."
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Klarna's Sykes said the company's credit risk is relatively low because Klarna's average order size in the U.S. is $150. "It's not like we target the subprime market," he said.
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Joe Floyd, general partner at venture firm Emergence Capital, which isn't an investor in Affirm or Klarna, said investors should probably not be valuing Affirm and similar companies as software companies, but instead as lenders whose business is heavily dependent on transactions and risks.
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Affirm, which raised its IPO price range from $33 to $38 to between $41 and $44, is looking to raise roughly $1.1 billion when it begins trading under the ticker AFRM on the Nasdaq Global Market. It's reportedly eyeing a valuation of more than $10 billion.
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"There's always risk if you're lending," Floyd said. "If I were a public market investor, I would not want to apply the same multiples as I do to pure software companies."
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</div></p><p><em><strong>Update</strong>: This article was updated at 8:15 a.m. PT to clarify the types of loans Affirm offers, and again at 11:52 a.m. PT to include its opening stock price. </em><br></p>
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Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
Power
The NYSE China flip-flop: A battle between profit and accountability
Western investors want transparency. But what if guaranteeing that closes a door on the U.S. profiting from China's tech success?
The New York Stock Exchange can't decide whether to delist certain Chinese tech apps.
Photo: Julien Chatelain
January 7, 2021
Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.
January 7, 2021
The New York Stock Exchange's flip-flopping statements this week over the delisting of Chinese tech stocks highlight a longstanding dispute over how much access Chinese corporations should have to U.S. capital markets. It's a debate that some experts say pits profit against accountability, and one that will likely continue under the Biden administration.
The confusion began last week, when the NYSE announced that it would delist the stocks of three Chinese telecom companies — China Telecom, China Mobile and China Unicom — to comply with the Trump administration's order in November barring U.S. companies and individuals from investing in Chinese firms that work with the Chinese military.
<p>The NYSE reversed that decision on Monday, only to change it again on Wednesday when it reaffirmed the plan to delist the stocks. Trading in the Chinese telecom company shares will cease at 4 a.m. Eastern Time on Jan. 11, <a href="https://ir.theice.com/press/news-details/2021/NYSE-Announces-Suspension-Date-for-Securities-of-Three-Issuers-and-Proceeds-with-Delisting/default.aspx" target="_blank">the NYSE said</a>.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="1">
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</div></p><p>The NYSE could not be reached for further comment. </p><p>Stephen Diamond, a law professor at Santa Clara University, said the exchange may have been caught flat-footed by yet another unexpected move by the Trump administration, which has been waging a bitter trade and economic war against China. "The NYSE just got caught in this whole mess that is Trump," he told Protocol. "It's like every other administrative effort. It's driven by Trump's ego, not by rational policy."</p><p>A <a href="https://www.wsj.com/articles/u-s-considers-adding-alibaba-tencent-to-china-stock-ban-11609961075?mod=tech_lead_pos2" rel="noopener noreferrer" target="_blank">report by The Wall Street Journal</a> on Thursday suggested that U.S. officials are also considering a ban on Americans investing in Alibaba and Tencent.</p><p>The NYSE announced that its delisting would be pushed through after Treasury Secretary Steven Mnuchin told it that he disagreed with the reversal, <a href="https://www.cnbc.com/2021/01/06/nyse-will-delist-three-big-china-telecoms-reversing-decision-once-again.html" rel="noopener noreferrer" target="_blank">according to CNBC</a>. Diamond said delisting the Chinese companies' stocks was clearly not in the interest of the NYSE.</p><p>"They didn't want to do this in the first place, probably," he said. "The NYSE has been pretty aggressive about courting Chinese stocks. … It earns revenue from listing fees and trading commissions. … Their motivation is to obviously keep as many of these listings as they can."</p><p>Edith Yeung, a general partner at venture firm Race Capital, who writes the <a href="https://www.scmp.com/tech/apps-social/article/3018026/chinese-internet-firms-are-no-longer-copycats-heres-how-china" rel="noopener noreferrer" target="_blank">China Internet Report</a>, said delisting Chinese companies could also drive many Chinese firms to other exchanges, shutting out U.S. investors from fast-growing businesses. Of the private companies globally that raised the most funding in 2020, the top 10 raised $13.6 billion combined, and six of those 10 were based in China, she said, citing Crunchbase data.</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="2">
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</div></p><p>"The Treasury Department and the New York Stock Exchange need to make up their mind," Yeung told Protocol. "If U.S. IPO markets continue to jerk Chinese companies around, it will send a really unwelcome signal to these high-growth Chinese companies that maybe they should consider listing in Hong Kong and Shanghai instead."</p><p>But Diamond said the NYSE's move also turns the spotlight on longtime concerns about the lack of <a href="https://qz.com/1858632/its-too-late-for-the-us-to-get-rid-of-chinese-stocks/" target="_blank">transparency</a> and <a href="https://www.cnbc.com/2020/04/28/china-cracks-down-on-fraud-and-tries-to-cleans-up-image-with-luckin-probe.html" rel="noopener noreferrer" target="_blank">accountability</a> from many Chinese corporations. The latest was Luckin Coffee, which was <a href="https://www.wsj.com/articles/luckin-coffee-drops-nasdaq-appeal-shares-to-be-delisted-11593188282" rel="noopener noreferrer" target="_blank">delisted</a> from the Nasdaq after reportedly being under investigation after disclosing financial fraud. With many Chinese companies, "things like corporate governance or shareholder rights … don't exist in any meaningful way," he said.</p><p>Diamond cited the recent controversy over Chinese tech titan Jack Ma, who has reportedly been forced to keep a low profile amid an apparent dispute with the Chinese government. Beijing is <a href="https://www.wsj.com/articles/chinese-regulators-try-to-get-jack-mas-ant-group-to-share-consumer-data-11609878816?mod=tech_lead_pos1" rel="noopener noreferrer" target="_blank">reportedly pressuring Ant Group</a> — the Chinese fintech that was <a href="https://www.protocol.com/bulletins/ant-groups-ipo-has-been-suspended" target="_self">on the cusp of a record-breaking IPO</a> and for which Ma is the major shareholder — to share the financial giant's consumer-credit data.</p><p>"If Jack Ma disappears, what is CalPERS going to be able to do about an investment it makes?" Diamond said, referring to the California Public Employees' Retirement System, a major institutional investor. "Nothing." </p><p>"This whole issue of Chinese access to the U.S. capital market is a critical issue that has to get taken seriously by the new SEC and the new administration," he said. "As ham-handed and clumsy and, frankly, sometimes even racist some of the criticisms [by] the Trump administration have been of China, there is a real issue about transparency and accountability for Western investors."</p><p><div class="ad-tag"><div class="ad-place-holder" data-pos="3">
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</div></p><p>In fact, the incoming Biden administration is widely expected to <a href="https://www.wsj.com/articles/biden-trump-xi-china-economic-trade-strategy-policy-11609945027" rel="noopener noreferrer" target="_blank">rebuild traditional U.S. alliances</a> as a way to counter China's growing influence, especially on the economic front. Biden plans to meet with some of the world's major leaders at an international gathering called <a href="https://www.politico.com/news/2020/11/28/biden-democracy-summit-440819" rel="noopener noreferrer" target="_blank">Summit for Democracy</a>. China and Russia are not expected to be invited.</p><p>Charles Elson, a finance professor at the University of Delaware and a corporate governance expert, said the controversy over the delisting of Chinese telecom stocks underscores the balancing act that the NYSE is often forced to undertake.</p>"By delisting, you lose the revenue from those listings," he told Protocol. "By including those listings, you get the revenue — but there's a public perception issue. Are you supporting a position that's antithetical to the national interests of the United States?"
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Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.
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