The Rush to IPO Before 2020 Ends
The end of the year is usually quiet for the IPO market, but this year has been far from normal. Even Bloomberg notes, “December is set to be the busiest year-end on record for initial public offerings in the U.S.”
As I write this, 13 companies expect to go public this week. Among those 13 are food-delivery company DoorDash and vacation-rental company Airbnb. If you’ve been following along here at Wealth Daily, then you’re aware that I’ve discussed both of these companies over the last month. If you haven’t, you can read those articles by browsing Wealth Daily’s archive here.
DoorDash is expected to go public on the NYSE this Wednesday, December 9 under the ticker symbol “DASH.” DoorDash increased its IPO price range this week. At this point, it is $90–$95 per share. Last week, I wrote that the company had a price range of $75–$85 per share, so this is a large jump for an already large target price. We likely won’t know the exact share price until its IPO, but sometimes a company and its underwriters announce their decision the night before the market debut.
DoorDash aims to take advantage of a strong IPO market along with high demand in the food-delivery industry caused by the COVID-19 pandemic... but that might not be enough for the company. Before the pandemic, food-delivery companies were struggling. The future of the industry looked grim after years of raising and losing billions of dollars. DoorDash was able to turn a profit in the second quarter of fiscal year 2020, but that was quickly diminished when it reported losses again in the most recent quarter. With demand for food delivery still high, you would think that the company could continue earning a profit, so some hesitation has emerged around DoorDash's IPO.
Ahead of this market debut, CtW Investment Group wrote a letter to the delivery company’s board of directors on Monday:
Without much more detail concerning, and ideally full remediation of, its flawed internal controls, we cannot avoid concluding that DoorDash is not ready for the increased scrutiny and accountability that are inherent in a public market listing.
This isn’t the only warning from experts. David Trainer, CEO of the research firm New Constructs, critiqued DoorDash's IPO, saying:
This IPO reminds us of WeWork’s attempted IPO, which we called "The Most Ridiculous IPO of 2019," because DoorDash’s businesses is similarly disadvantaged... To justify a $25 billion valuation, the company needs to grow its share of global food delivery app market to 56% from ~16% over the trailing twelve months (TTM) while also raising margins from -12% to 8% in an intensely competitive business.
Clearly, DoorDash has some issues — like the future of the food-delivery business model. And while business picked up this year because of the pandemic, there is no guarantee that demand will always be there. Then there's the question of the legality of the company continuing to classify its dashers as contractors and not employees. Tomorrow we will see how receptive the market is of a company like DoorDash.
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It contains full details of tips on how to take advantage of the hottest upcoming IPO's.
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Is Airbnb Expecting Too Much?
Airbnb is expected to go public on the Nasdaq this Thursday, December 10 under the ticker symbol “ABNB.” Just like DoorDash, Airbnb has boosted its proposed IPO price range. Last week, we got word that the company anticipated a target price of $44–$50 per share. However, Airbnb has increased that to $56–$60 per share. That would give the company a valuation somewhere near $42 billion — $18 billion more than it was worth during a private fundraising round in April. At the upper end of that new price target, Airbnb would raise about $3.1 billion, making it one of the largest U.S. IPOs of 2020.
An increase in price target can imply a few things, but most often, it implies that the offering is being well-received among investors and there is high demand for shares. Both Airbnb and DoorDash expected to go public before the COVID-19 pandemic but chose to hold off. Now that the IPO market (and markets in general) are more receptive, these companies are rushing to make their public debuts.
According to data from Bloomberg, IPOs on U.S. exchanges have already raised a record $156 billion this year. That type of figure gives companies contemplating going public even more reason to do so before the year ends. DoorDash and Airbnb aren’t the only companies that considered this. This month, we’re expecting market debuts from Affirm Holdings, which lets online shoppers pay for purchases in installments, and Roblox Corp., a videogame company. These are also highly anticipated IPOs and could attain valuations in the tens of billions of dollars with their listings. Karen Snow, head of East Coast listings at Nasdaq Inc., had this to say about what’s going on with the IPO market in December:
This group of companies that you have coming out now maybe weren’t thought of initially as benefiting, but they’ve been able to show very strong results despite the coronavirus.
December 2020 is going to be a month to remember. Buckle up.
Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
Until next time,
Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
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