During the sizzling direct-listing debut of reAlpha Tech Corp., a small property technology startup, its CEO witnessed a surge in paper wealth. However, in the days that followed, the stock price took a significant plunge, causing most of the accumulated wealth to vanish.
Headquartered in Dublin, Ohio, the company witnessed its stock soar by 1,667% on its initial day of trading on Nasdaq. Starting at a price of $23.01, which was well above the $8 reference price, the shares concluded the day at $406.67.
As a result of the explosive first trading day, Giri Devanur, the CEO, saw a staggering increase of $11.2 billion in his personal wealth due to his substantial stake in reAlpha stock. However, the stock experienced a 75% freefall on the following day and continued to decline throughout the week, marked by frequent trading halts. Eventually, on Friday, the shares dropped by 50%, closing just below their initial price after short seller Spruce Point advised against purchasing shares.
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Consequently, Devanur’s majority stake in the company plummeted to approximately $655 million.
Prior to the direct listing, Devanur had disclosed his ownership of 27.6 million shares, which represented about 65% of the outstanding common stock, according to a filing submitted by the company this week.
“The problem lies in the float; it’s locked up,” remarked Kim Forrest, founder and CIO at Bokeh Capital Partners. She added that even if Devanur were to sell shares to increase liquidity, it might be perceived in a negative light. “This company is facing a challenging situation,” Forrest commented. “It’s a game of numbers, and currently, the numbers are not in favor of this small company.”
reAlpha Tech serves as an example of how small and thinly traded companies can experience substantial gains in stock value following a listing, only to witness the swift disappearance of those gains, resulting in significant losses for major shareholders. In August, Pham Nhat Vuong, the founder of VinFast Auto Ltd., faced a similar situation when the stock surged after its debut, but later fell.
The stumble in the first week also highlights investor sentiment towards newly listed firms, given the uncertain market conditions influenced by earnings season, economic instability, and geopolitical tensions. Notably, high-profile IPOs like Arm Holdings Plc and Instacart initially performed well but have since experienced declines.
However, not all companies have received a warm reception in the public markets this year. Birkenstock Holding Plc, renowned for its sandals, encountered a decline during its October trading debut and has since remained under pressure.
reAlpha Tech, a company that utilizes “artificial intelligence-focused technology” to empower retail investors to partake in short-term rental properties like those available on Airbnb, has indicated in a filing with the US Securities and Exchange Commission that Devanur’s majority stake classifies it as a controlled company under Nasdaq listing regulations. The company has not yet responded to Bloomberg News’ request for comment.
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