Breakingviews - Tech IPOs uncork too much of a good thing

A delivery person for Doordash rides his bike in the rain during the coronavirus disease (COVID-19) pandemic in the Manhattan borough of New York City, New York, U.S., November 13, 2020. REUTERS/Carlo Allegri

SAN FRANCISCO (Reuters Breakingviews) - Things that go pop can be exciting, or scary. Recent initial public offerings in the U.S. technology sector have managed to be both. Shares in home-sharing app Airbnb and food-delivery service DoorDash shot up last week, but they have left some hesitation in their wake.

Roblox, a platform for gamers, and fintech startup Affirm seem to have caught the chill. Both were expected to go public this month but have now pushed their listings back to early next year, Reuters and the Wall Street Journal reported. Roblox Chief Executive David Baszucki said in a memo to employees that the company wants to work with its advisers to foster a more “market-based relationship” with investors. A surging market has also caused a paperwork backlog at the Securities and Exchange Commission.

One source of concern with the first-day exuberance is that companies end up leaving too much on the table. Airbnb added $3.4 billion to its coffers through its IPO; those same shares would have been worth around $7.3 billion if they were priced at $146 per share. Similarly, DoorDash raised more than $3 billion, but the roughly-80% surge in its shares shows it could have snagged much more. In 2019, the average first-day IPO pop was 18%, and even that was the highest level since 2013, according to Renaissance Capital.

But companies have to be careful to make sure that the creation of first-day winners doesn’t create too much disappointment elsewhere. Venture capitalists, like Sequoia Capital in Airbnb’s case, reap big paper returns, as do big investors who get allocated stock at the IPO price. Employees who are limited in how much they can sell, or retail investors who can’t buy until the shares start trading, miss out.

There’s also a rising risk of alienating people who matter a great deal: users. Retail investors, aided by brokerage apps like Robinhood, have become a bigger part of the market. The overlap between those who patronize brands like Airbnb or Roblox and the people trying to buy shares at escalating prices is growing. Every firm likes to see its shares rise on the first day, but not if that means leaving a trail of losers close to home.


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