A big week for IPO’s
By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets
Airbnb finally worked its way onto the public markets this week. From a returns point of view, it was an almost unprecedented success. The price doubled by the end of the first day, ending at nearly triple the $44-50 range given the week before as part of the roadshow process.
The company ended the week at a market capitalisation of nearly $83 billion more than Marriott, the world’s largest hotel owner. This is also slightly higher than Goldman Sachs’ market cap — for a tech company that has not yet made a profit.
DoorDash went public the day before and had a similarly impressive rally of 86% by the end of its first day. The long-term success of DoorDash is less clear than that of Airbnb. As a food delivery service, it has boomed this year due to coronavirus. It is highly likely that some of this growth will fall off in the next few years when the world returns to some form of normality. As a result, the profit made in Q2 may turn out to be an anomaly in the long run.
This tech frenzy has naturally caused many to warn of the similarities to the tech bubble in the late ’90s and early 2000s. This year has seen the most number of IPO's double since that bubble. There is also froth elsewhere; take Tesla as an example which is up a mind-boggling 600% in 11 months. No company warrants that kind of share price growth in such a short space of time. These kinds of returns are certainly detached from any form of reality.
Are these stocks overpriced? I would say almost certainly. However, I would never bet against them or the broader market. We might be in a tech bubble akin to the 2000s; but if it could be predicted, then it would not be a bubble. These things are inevitable when it comes to speculative stocks, one must ride out the volatility even if the market falls. To go to cash or even to short these stocks is reckless and can lead to far more damage in the long term for the average investor.
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