I very rarely talk stocks, but the Door Dash and Airbnb IPOs this week cannot go untouched. Before I begin my rant, I am fully disclosing that I have done zero analysis on either company. I have not read their S-1 or any other Wall Street research out there.
I’ve never even used Door Dash because I refuse to pay exorbitant delivery fees. I have used Airbnb and overall not a fan. If I’m traveling somewhere, I want a stocked mini bar, 24-hour room service, and spa cookies at a minimum. And they don’t have a points program, so I don’t see how any respectable business traveler could use Airbnb in good conscience.
At $70 billion in market cap, Door Dash is now worth more than Chipotle, Dominos, Dunkin, Bloomin (Outback), Dine Brands (Applebees, IHOP), and Denny’s COMBINED. At $100 billion, Airbnb is now worth more than Marriott, Hilton, IHG, and Accor COMBINED.
These valuations are staggering for companies that face material headwinds going forward. Door Dash has a ton of competition in what is becoming yet another commoditized tech offering. Airbnb has to deal with people like me who recently pushed through a rule in my co-op building in NYC that threatens shareholders with a forced sale of their shares if their units are even listed on Airbnb.
But somehow these IPOs still came in massively underpriced – even after raising the price multiple times prior to pricing the offering. Investors are now asking where this demand is coming from.
One theory is that Robinhood traders and other Millennials/Gen Z-ers that were able to muster the energy to hit pause on their Xbox for 4 minutes to trade on their iPhone were the ones behind the massive demand for these stocks.
There may be some merit to an unsophisticated demand source. The options activity exploded yesterday on ABB, which implies big bets from those who couldn’t get in the IPO. The only problem that these FOMOs will soon realize is that Airbnb’s ticker isn’t ABB but rather ABNB. I would pay a month’s salary to be there when these couch potatoes realize they just tied themselves to an industrials supplier with a “not so great” ESG score.
Look, any trend/event that uses capital markets to take money out of Millennials’/Gen Z-ers’ pockets and put it into the hands of capitalists gets my full endorsement. However, I don’t think this explains all of the demand. There are only so many of them out there willing to borrow money from their parents to buy stocks. There has to be some institutional demand behind this, and that’s what has me perplexed.
If I had to guess, the FOMO is coming from the institutional side. According to the Wall Street Journal, more than $155 billion has been raised on U.S. exchanges year-to-date, far exceeding the previous full-year record set at the height of the dot-com boom in 1999. Palantir, Snowflake, and so many other IPO success stories made a lot of fund managers look smart, and those that didn’t participate have about 2 weeks left to catch up or else their bonus may be at risk.
And speaking of bonuses, the ones who will probably get shafted the hardest here will be the bankers themselves. Banner years for IPOs tend to bring big bonuses to bankers, but just watch. As Churchill once said, “Never let a good crisis go to waste.” This is something politicians have certainly taken to heart throughout this COVID mess, and mark my word so will big banks. I’d wager another month’s salary that c-suites tell their bankers they can’t pay bonuses this year (or even worse pay out in all stock) because of COVID.
Overall, a healthy IPO market tends to be a good trend for investors because it indicates optimism amongst more than just Robinhood traders. We want to see the “risk on” behavior from the institutional side (up to a point). Add in the Mergers and Acquisitions (M&A) activity and 2020 could end up being one of the most memorable years for capital markets.
Have a great weekend…
Mike on Markets 