Exciting stock market launches despite C-19
With a unique year and a demanding pre-Christmas situation, 2020 is still a year with several exciting companies that have gone public in the USA.
According to Renaissance Capital, more than 200 companies with a value of more than USD50 million have been listed on the stock exchange. With the pandemic and the somewhat curly IPOs of Uber and WeWork in 2019 as a backdrop, this may seem surprising.
Wednesday 9 December, two exciting companies went public: the accommodation company Airbnb and the home delivery company DoorDash.
DoorDash delivers things home to people who for various reasons cannot or will not seek out the supplier. In other words, they are like Foodora.
On Wednesday, 9 December, Doordash was introduced to the New York Stock Exchange. The stock was IPOed at USD102 and closed at USD 190 - up 86%. A success by most standards despite a total loss in 2020 of USD 149 million.
With a market value of USD72 billion, they are worth more than the sum of Dominos Pizza and Chipotle Mexican Grill. But I'm worried because pandemic companies are sensitive stocks. Let me give an example.
The video conference company Zoom has had an adventurous share price development since the IPO (USD 36) in March 2019 with a growth rate of turnover of over 100% in 4Q 2020. But when the news of the Pfizer vaccine was announced on Monday 9 November, the share fell by about 25% from Friday, November 6, (USD500) to USD376 at the end of Tuesday, November 10. The stock is obviously sensitive to positive pandemic information ala vaccines that can bring us back to normal.
I believe that DoorDash is an even more pandemic sensitive stock than Zoom, for two reasons. First because it is based on the fact that home delivery has accelerated as a result of the pandemic and not because of DoorDash's innovative business model or attractive market offerings. We must therefore assume that the demand for their services will decrease when everyone is safe, and we can all again seek out restaurants and other service providers.
The second reason is just as basic. DoorDash is, in my opinion, a company operating in a generic "last mile" service market where players such as Lyft, Foodora, Uber Eats, GrubHub, and Postmates can easily engage in a price-based "race to the bottom" strategy. In other words, a Red Ocean strategy. This makes the company vulnerable to the C-19 process, cost development, and innovations from other players.
Unlike DoorDash, Airbnb is successful despite the pandemic. While the nominal price on NASDAQ at the opening on December 9 was USD68, the share closed at USD144 on the same day - up just over 110%. In other words, the company is valued at USD100 billion - which makes them worth more than the sum of Mariotte, Hilton, and Hyatt. Not bad for a company that makes a living from renting out vacant rooms, apartments, houses, or cottages and has lost about USD2.1 billion since its inception in 2018. Still, I am optimistic - primarily for two reasons.
Airbnb is part of a larger travel / tourism industry that was hit hard by the pandemic. Since March this year, the company has shown great ability to restructure through cost cuts and the development of new rental services. The result was a profit for the third quarter of USD 219 million. Secondly, when we can all travel safely again - perhaps during 2021/22 - the leisure travel market will bounce back and the demand for Airbnb's services will follow. What we have seen in the pandemic period is that a number of customers have used Airbnb to avoid the large hotels where they can be more easily exposed to infection from other guests. In other words, customers use Airbnb to protect themselves.
The outlook for Airbnb is thus robust regardless of whether the C-19 vaccination takes time or not. They are not that bright for DoorDash who are more dependent on the "normal" coming later than before - something no one else wants!