Read the transcript below.
Hey there it’s Dan Ferris editor of extreme value and I’m on the road so this video might be a little shaky but I can’t resist commenting on something I saw in the Wall Street Journal today. Apparently Spotify and going public is doing something quite a bit different than most other IPOs and that something is simply to directly list the shares and let the markets set the price rather than the traditional IPO route through an investment banker and this of course has dramatically reduced the fees paid to any bankers that are involved in the transaction.
One fellow said in The Wall Street Journal article that I read said that, “you know this is a travesty because IPOs are the cornerstone of the banking business the investment banking business” and of course this is ridiculous this is how capitalism works. Nobody’s going to be heartbroken for investment banks this is a good thing, it’s a good thing that there’s less frictional payment coming off of these transactions and going to investment banks. Whether or not this will start a trend in this type of thing I don’t know but with a company like uber out there that might have a big IPO to do it’s certainly an interesting topic and I’m very very happy to see less fees going to investment banks.
What I think they’re not covering for example in this article is that you know groceries and clothing and other necessary items of life were the cornerstone of a lot of businesses that were put out of existence by Walmart and then by Amazon and other big companies that’s how capitalism works. It’s a good thing because all those companies even the mom and pops in the Wall Street area I’m sorry the Main Street grocery stores were basically ripping us off they were charging way too much because they didn’t have the scale to cut the price down the way Walmart and Amazon do and you know this company found a way around being ripped off by investment banks so good for them and good for all of us good for the world and let’s hope they somebody finds a way to get the cost of it down even farther and farther if you look at frictional cost in the financial industry.
Trading costs have plummeted it’s cheaper than ever to trade equities and and other instruments and it should be, it’s all done electronically now and it’s a very much more efficient process than it ever was before including the presence of high frequency trading. It’s much more efficient and electronically enabled and that development to has kind of influenced the ability of a company like Spotify to be able to come in and say you know we’re gonna skip you guys and just pay a little bit of money to banks and and list our shares directly it’s more complicated process than that if you read the article but but that’s the gist of it and I like it it’s a good thing.
I’ll talk to you again soon bye
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