Markets: Signs of a new IPO bubble
It’s “silly season” for new stock issues again, said Ben Winck in Business Insider.com. Last week the homesharing platform Airbnb went public, opening for trading at $146 a share, giving it a market value of $101 billion. Though the price has slipped since, it’s still worth more than Marriott and Hilton combined. Meanwhile, the unprofitable delivery service DoorDash rocketed to a value of $65 billion in its own initial public offering. Investors seem to be willing to buy shares in IPOs at just about any price, a level of “euphoria and greed that’s likely not been seen in the stock market since the dot-com bubble of the late 1990s.”
The frenzy has left tech investors “befuddled,” said Eliot Brown and Maureen Farrell in The Wall Street Journal. It has been so shocking that one highly anticipated IPO, that of the videogame maker Roblox, has been delayed until next year because it’s simply too difficult to guess the right price for shares. Investors expect the new wave of tech offerings to “dominate their industries,” valuing unprofitable young companies vastly higher than giant corporations with consistent profits. The gap leaves longtime observers perplexed and worried. “I have a great deal of difficulty understanding the valuations of some of these companies,” said Jay Ritter, an economist who studies IPO pricing.
Airbnb does have something that
Uber, WeWork, and other high-flying startups did not, said Gina Chon in BreakingViews.com: a solid business model. After the pandemic hit, CEO Brian Chesky slashed costs and redirected the firm’s focus to longer-term stays in more remote settings to attract those eager to avoid hotels and tight quarters. It’s one of many tech companies that have been given a jolt of energy this year, said Erin Griffith in The New York Times. “At the onset of the pandemic, warnings of startup doom abounded” and investment shrank up. But investors have come to recognize how 2020 has “supercharged the adoption of tech products and services.”
That hasn’t exactly been the case for Airbnb, said Brian Sozzi in Yahoo.com. Airbnb “never turned a profit during the prepandemic good travel times; when it may turn a profit post pandemic is anyone’s guess.” Setting this kind of value on shares of Airbnb and DoorDash is “borderline insane.” Investors are going to be demanding “the sky and the moon” from them “on each earnings day for the next five years.” A few big names familiar to consumers are drawing droves of investors into wild trading manias. But all this is likely to end badly when the skyhigh expectations crash into “financial reality.”