Airbnb’s Wall Street debut was subject to plenty of hype and speculation. Even so, the startup’s first day of trading was nothing short of jaw-dropping.
What happened: Airbnb shares opened on the Nasdaq Thursday at $146 apiece, more than double its $68 IPO price and valuing the company at more than $100 billion. The stock closed at nearly $145, which means Airbnb is now worth more than Marriott, Hilton and Hyatt combined.
Even CEO Brian Chesky couldn’t hide his shock when he heard where the startup’s shares were poised to begin trading. On Bloomberg TV, he noted that investors valued shares at roughly $30 during a round of debt financing in April.
“I don’t know what else to say,” he stammered.
Experts were gobsmacked, too.
“For a mature company to see the valuation increase by [that much] in a matter of nine months is incredible,” Jay Ritter, a University of Florida professor who specializes in IPOs, told me.
The change in fortune is a testament to Airbnb’s ability to quickly turn around its business during the pandemic, cutting costs and focusing more on long-term stays closer to home. It’s also a sign of incredible investor demand for fast-growing tech startups, as low interest rates limit interesting alternatives.
But the spectacular first-day trading pop means the company could have brought in a lot more money to fund its business. Had Airbnb priced shares at $146, it could have raised an additional $4 billion — a huge sum to have left on the table.
That funding could have been on the company’s balance sheet, seeding growth that would push its stock price even higher, Ritter noted.
Who’s mad? The discrepancy may spark some soul searching at Morgan Stanley and Goldman Sachs, whose investment bankers led the offering. It also means that pre-issue stakeholders missed out.
It’s not just an Airbnb phenomenon, though. DoorDash opened at $182 per share earlier this week after having priced at $102 apiece. That means the company left more than $2 billion on the table.
The lesser-known C3.ai, an artificial intelligence software provider that started trading earlier this week, saw its stock close at $130 on Thursday. Shares were initially priced at $42.
Ritter said that companies like Airbnb are difficult to price, but given its dominance in a big market for home rentals, a high valuation is appropriate. He’s less convinced by DoorDash.
“Food delivery is not a high-profit business,” he said.
It’s a frenzy: What’s evident is that demand for tech stocks from both institutional and retail investors is soaring, raising important questions about whether markets are getting too frothy and valuations are due to come back down to Earth.
Many on Wall Street have been hesitant to make this call, predicting tech investments will still generate hefty returns in 2021. But this week’s IPO madness is certainly a good moment to pause for reflection and reassess fundamentals.