New process, same result.
A new hybrid auction process used for
The initial public offering was designed to give the company and underwriters led by Goldman Sachs a better read on investor demand than the traditional IPO process and allow for pricing closer to the market.
But judging by the 86% gain in DoorDash stock (ticker: DASH) on its first day of trading on Wednesday, the hybrid auction process fell short of that target.
The 33 million stock offering was priced at $ 102, above the $ 90- $ 95 price range, then climbed to close at $ 189.51 on Wednesday, valuing DoorDash at around $ 72 billion. dollars based on a fully diluted number of shares.
It looks like DoorDash got what it wanted – a more detailed list of what big investors were willing to pay for its stock – and still chose to price it cheaply over demand. DoorDash apparently wanted to channel the shares to certain preferred investors who weren’t the highest bidder.
The guiding principle here seems to be that some institutional investors are better than others, with the privileged supposed to be more business-friendly and more inclined to hold stocks for an extended period of time rather than flipping them on the first day of trading. DoorDash declined to comment.
The hybrid auction process is just that. Firms, aided by their IPO underwriters, get an on-demand read, then choose to price the trade where they want and award the shares to whomever they choose. This is why the process has been described as “an offer like an auction, an allocation like a traditional IPO”.
DoorDash was unwilling to hold a full Dutch auction in which it would commit to allocating stocks only to the highest bidders, as
(GOOGL) did so with its IPO in 2004.
There could be a similar pop
when it starts trading on Thursday. It valued its $ 3.5 billion IPO of 51.5 million shares at $ 68, 13% above the high end of the price range of $ 60 per share. This values Airbnb at around $ 47 billion based on a fully diluted stock count. Airbnb will trade on the Nasdaq under the symbol ABNB.
Airbnb’s IPO uses the hybrid auction originally used by the
(U) IPO in September. It is underwritten by a group led by Morgan Stanley.
If Airbnb has something like a DoorDash-type first-day gain, it could trade above $ 100 a share on Thursday.
Some of DoorDash’s big stock gain on Wednesday also reflects the foamy IPO market, especially in the hot tech and consumer sectors.
And the deal wasn’t cheap based on DoorDash’s financial results, given that it was operating at a loss – $ 149 million – in the first nine months of 2020.
The IPO price of $ 102 valued DoorDash at more than 10 times expected sales for 2020, in line with the world’s richest comparable company,
(MPNGF) from China. DoorDash is much more expensive in terms of sales than its small American rival
(GRUB), which is valued at four times 2020 sales. (Grubhub has agreed to be acquired by
Eat just take-out.com
(TKAYY) in an all-stock transaction valued in June for $ 7.3 billion.)
One of the takeaways from the DoorDash deal is that large, preferred institutional investors know they don’t have to bid aggressively and get stocks.
IPO critics like Benchmark venture capitalist Bill Gurley blasted Wall Street, writing earlier this year that the process “robs Silicon Valley founders, employees and investors of billions of dollars each. year”.
But we forget that companies in Silicon Valley do not seem to want to maximize the proceeds of the IPO and would prefer to distribute shares to privileged investors. If they wanted to get the most money in their public debut, they would embark on a real auction process.
The fault with the IPO process may lie with Silicon Valley and not Wall Street, which simply does what the client wants.
Write to Andrew Bary at [email protected]