Focusing on the market debut of DoorDash and Airbnb, EquityZen’s Brianne Lynch joins Yahoo Finance Live to discuss the state of the IPO scene in 2020.
Julie Heyman: We are clearly seeing demand, as evidenced by their pricing. What else do you see on your platform?
Brian Lynch: A well-known company in the private market over the past few years. There was great demand from investors. And this demand is certainly transporting into the public markets, as we see it, where the valuation has been coded constantly. And it’s very strange to see that a company that was raising only $ 16 billion in capital over the summer is now priced at around $ 38 billion. So I am very keen to know how the general market trades these stocks as soon as they become available later today.
Brian Suzy: Brian, why do you think we’ve seen this push up in their rating over the last few weeks because they’re out – where the executive team has been on Road Show? Let’s be real here, DoorDash doesn’t mess it up in terms of earnings. They have a long history of losses. It is unclear if any signs of earnings they posted in the last quarter of their business can be preserved as we start to open up again for business next year.
Brian Lynch: Yes, these are all very good points. And I think one of the things they are looking to capitalize on that investors are buying is the growth that they have seen. They have nearly tripled their earnings this year. To be sure, the pandemic environment was very productive for their business, with people at home asking to eat more ready meals than ever before.
They are the leaders of market share. But it is a crowded market. And it is difficult to gain market share in an environment where promotions form a large part of delivery. So these are all considerations to keep in mind.
But what I think is different for DoorDash, and even Airbnb, which was also announced this week, is the way the promo has been made. This may play an important role in how the price goes up. So in this auction process that both companies use, investors enter the number of shares they want to buy at different price points. Essentially, the company and its bankers can set the price for those shares and then allocate them directly to the investors.
So if the investor does not meet the cutoff he has specified, he will not receive an allocation. This may be part of what is driving stocks higher, is the desire of investors to get these provisions. But we have seen overall this year that the IPO has been warmly received by the public markets.
Brian Suzy: Looking at the push up, Brianne, on these reviews for Airbnb and DoorDash from before – before the IPO, did that cause ratings on your platform for private companies that remain private, does he send it up?
Brian Lynch: Yes, what we see on the EquityZen platform is that private market assessments tend to delay what we see in the public markets. But I can say that the abundance, demand, profitability, and support that we have seen for these public companies is kind of feeding the demand in the private market. We see a lot of these unicorn companies very popular on our platform. We have seen more demand than ever in the last few quarters.
Julie Heyman: And is the request random, Brian, because it looks the same, right? I mean, you can say on the one hand, DoorDash is a very public company. It is a consumer name. Airbnb, public company, consumer name. This explains it. But we also have a lot of corporate software plays out to the public and many B2B plays that have gone public and have seen similar demand. So, do people just throw money at everything?
Brian Lynch: It is a good question. And this year we’ve seen that IPOs are back more than 111% versus S&P increasing 16% or so. And these companies have really managed to ride this wave as the market rallied, with positive vaccine news, post-election, and calming a bit of volatility.
And they worked well. Investors seem to be craving a return. And these growth stories are attractive to them. Even as we have indicated with many of these companies, profitability is not something they have achieved or something they say they have achieved – they will be able to achieve it in the near term.
Brian Suzy: Does Airbnb, based on your knowledge of each company only, do Airbnb and DoorDash, do they have Uber-like opportunities? I mean, Uber, for the better part of its public life, has been useless, largely because it has been valued so strongly in private markets that its financial institutions have in no way supported that early assessment.
Brian Lynch: Yeah. This is a big trend that we’ve seen over the last few years. The real reason behind the emergence of stocks was this change where there is tremendous growth and real opportunity while these companies are still private. They are raising a lot of capital. They are growing so much that by the time they become teenagers ready to hit the public markets, the amount of residual growth is questionable.
So that’s definitely a question. This is the reason why there is a great demand for investment in the private markets. But I think Airbnb, for example, is a company that has shown that it has managed to correct the ship’s course during a very difficult period. They raised the debt. They have laid off workers.
They have really honed the core part of their business. And what they’re selling to investors is that we’re starting to recover. And the best is yet to come upon return travel. So I think there is still a compelling story for them as an example.
Julie Heyman: I mean, to pick up the point, what’s so interesting to me about Airbnb is as terrible as the past – the first six months of the pandemic were for the company, is it some kind of blessing in disguise? Has Airbnb become more disciplined as a result of the pandemic? Cut costs. Cutting staff.
And the IPO may be entered in a better place than it would have been otherwise. I know that’s kind of turning things over his head. But, I mean, looking at – we’re not talking about profitability here, I wonder if that puts it on a tighter path to profitability.
Brian Lynch: Yes, I totally agree with you there. And I would say the epidemic forced them to become more disciplined and maybe grow up to be a general market type company. And they took all steps to do so. And they were very disciplined in paving that path. And the fact that they were able to turn a profit in the third quarter is a step in the right direction.
And I think they paint this version of fiscal responsibility. And I think this is something that will have more resonance with investors. Excited to see where the bid price will be located later today.
Julie Heyman: Yes, like me I’m Brian Lynch, thanks so much for being with us. Nice to see you, Head of Business Development & Partnerships at EquityZen.