Blogs -Analyzing the IPO Glut of 2020: Snowflake, AirBnB, DoorDash and Roblox

Analyzing the IPO Glut of 2020: Snowflake, AirBnB, DoorDash and Roblox


Beth Kindig

Lead Tech Analyst

Last week, I wrote about the outsized risk with Snowflake, AirBnB, DoorDash and Roblox’s IPOs showing an extreme increase in valuation since the last private funding round that will be hard for the public markets to absorb. I dug up some comparative research between 2019 IPOs and 2020 IPOs and describe this outsized risk, which is 10-fold from the IPO class of 2019.

More times than not, IPOs lead to losses for retail investors and there are specific reasons as to why. These reasons have only gotten worse with loosened IPO regulations.

Despite the hype that flashy IPOs draw, more than 60 percent of the 7,000 IPOs from 1975 to 2011 had negative absolute returns five years later. However, the 40% odds for success through 2011 are better odds than what investors face today.

The opening valuation for Zoom Video caused Barron’s to call Zoom Video’s IPO a Crazy Bubble. If that’s a crazy bubble, then I’m not sure what the words are for 2020. The word “glut” comes to mind as Snowflake, AirBnB, DoorDash and Roblox increased their valuations from the last private by an order of magnitude compared to the IPO class of 2019.

Snowflake’s last private funding round was at a valuation of $12.4 billion in February 2020 with an initial price of $33 billion and an opening price of $68 billion in September of 2020. That means Snowflake opened trading at a premium of $8 billion per month since the last private valuation compared to Zoom’s $700 million and Crowdstrike’s $600 million. Snowflake essentially 5X’d it’s valuation in 7 months while revenue declined.

This also means the market must absorb a $35 billion premium on top of the initial price. How long do you think that will take considering it took Zoom Video a year to recoup a $10 billion premium? It’s impossible for a valuation to spike that much in one day without it taking a substantial amount of time for the valuation to catch up to financials.

This is a tough pill to swallow as we’ve published favorably on Snowflake as a company and a product. Yet, there is no real valuation here if the last private valuation was $12 billion within the last year; it’s simply pie-in-the-sky pricing that insiders hope will last. The company did not change and there were no catalysts.

Consumer favorites AirBnB and DoorDash came public recently and the difference in private valuation versus public valuation is even more absurd as these companies carry a higher risk in terms of performance post Covid. AirBnB’s last private valuation was on April of 2020 for $18 billion. Eight months later the initial pricing was at $42 billion and the opening price at $90 billion.

AirBnB’s opening price equates to $9 billion in valuation per month in premium that retailers are paying on a company that was worth $18 billion earlier in the year with the same growth numbers and revenue. In fact, AirBnB only grew revenue by $1 billion in 2019 before declining by $1 billion in annual revenue in 2020 due to Covid. The forward revenue for this year is $300 million more than the revenue in 2019. Most certainly, growth did not drive the opening valuation.

DoorDash carries the most risk of the four names we are analyzing as the economy opening up will translate to fewer food deliveries. This company had a $16 billion valuation in its last private round in June of 2020. The initial price was at a $34 billion valuation and the opening price at a $72 billion valuation.

Technically, DoorDash should be valued below its Covid valuation as there’s more risk with the economy opening up as to how the company will perform. All Covid winners have taken a hit to their valuations: Zoom, Crowdstrike, Peloton, etcetera.

Roblox is another example of how IPO valuations are overpriced for retailers. The company raised a private round at $29 billion in February of 2021 before going public at a $39 billion valuation one month later. This means retailers were charged at $10 billion per month premium. We will check back this time next year to see how long it took for Roblox’s stock price to permanently absorb the $10 billion it charged retailers. Notably, all of these examples do well in bull markets while the real impact is revealed during downturns.

Often times, retailers will cheer on 15% or 30% gains in one day when a stock really pops. Yet, most IPOs are seeing 80% to 100% gains for an average of $30 billion generated in one day between the initial price and the opening price. What retailers must understand is that valuations have a ceiling and this means the company must earn back the $30 billion pop in valuation.

Read the Full Article at Forbes

 

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