I'm sorry, but I just don't think the insane DoorDash IPO yesterday had much to do with excitement over the food delivery space. You don't go through a whole valuation process to figure out what the business should be worth only to double that figure in the span of one morning.
Here's what I mean: DoorDash underwriters priced the listing Tuesday night at $102 a share, valuing the company around $39 billion. That was already high, above the expected $90-95 range and even that range was up from the numbers originally going around last week. By 11:30 a.m. yesterday, I emailed my producer, "when's this thing gonna open?" Not anytime soon, she cautioned; the indicated range was still $5 apart--oh, and now up between $150 and $155. "WHAT?!!!!" I wrote back.
But it got even crazier! The range went as high as $195-200 before DoorDash eventually opened at $182. In other words, a business that was worth $39 billion on Tuesday evening was suddenly worth upwards of $75 billion at one point on Wednesday afternoon. At yesterday's closing price, just below $190, DoorDash is a $60 billion company. And it's not (yet) profitable.
But again, I'm less interested in debating whether DoorDash deserves a 16-times revenue multiple based on its positive "contribution margins." I'm more interested in what on earth just happened yesterday? To that end, I thought our Leslie Picker made some excellent points about the purpose of these IPOs earlier this week; remember, it's not Joe Public that gets an allocation of shares at $102. It's professional investors.
And as we've talked about time and again, the market's stunning comeback this year has been fueled by Joe Public, not the pros. The Nasdaq is up 43%!!!! So if you're a professional investor, how do you not only match but even beat that performance to demonstrate the "alpha" your clients are paying top dollar for? Well, like Leslie said, here's a chance in the closing weeks of the year to grab a piece of a couple of hot IPOs that--because they're too new to be in any of the major averages--could deliver just the outperformance you need.
So if you got DoorDash shares at $102 and sold them to the public in the $180s yesterday, that's a nice 80% gain to help your 2020 numbers. It's why, when Scott Wapner asked Pete Najarian yesterday if he'd buy DASH shares after they hit the open market, he chortled, "No!"
Now, there's been a ton of hand-wringing over the years about the flawed IPO process, most of it blaming the Wall Street underwriters. The narrative is that they deliberately underprice the listings in order to generate these pops for pro investors, which robs start-ups of the ability to raise billions more dollars. If DoorDash priced at $175, for instance, instead of $102, the company could have raised almost $6 billion instead of $3.4 billion by going public.
But Andrew Bary over at Barron's isn't buying it. If DoorDash really wanted top dollar, he writes, they could have done a true "Dutch" auction like Google did with its IPO in 2004. Instead, they did a "hybrid" auction, letting them see what the pros were willing to pay--and ostensibly choosing to price below top dollar. "DoorDash apparently wanted to direct stock to certain favored investors who weren't the highest bidders," he wrote.
Airbnb, which goes public today, is also doing a hybrid auction. The shares priced at $68 last night; let's see how high this one goes. "If [Silicon Valley] did want to get the most money in their public debuts, they would commit to a true auction process," Bary wrote. Meanwhile, pro investors get to pocket major gains. If you're Joe Public, caveat emptor.
In fairness, recent IPOs have done remarkably well even after hitting the markets; the Renaissance IPO ETF has more than doubled this year, fueled by 8x gains in shares like Moderna (names rotate out after two years). I suppose, if you still want exposure to these IPOs, that's the safer way to get it.
See you at 1 p.m!