It’s a big month for IPOs: Airbnb and DoorDash are both going public this week, and online video game company Roblox and fintech Affirm are set to follow. DoorDash sold shares at $102 (above estimates), and then closed its first day of trading at $189. How is this happening in a country gripped by a coronavirus pandemic and high unemployment? In the topsy-turvy logic of the stock market, financial wins are possible. Here are a few reasons why:
1. Some companies going public have mostly benefited from the pandemic
DoorDash is illustrative: Its third-quarter revenues were up 268% from last year, and with its order volume from January to September up threefold from a year earlier. Is there a better time to IPO? No. Particularly given that revenues may well plummet post-pandemic. Under similar pandemic spikes in business, biotech IPOs have also surged this year.
2. Other business factors take precedence
Airbnb is going public today, in one of the few recent IPOs from a company that has been deeply wounded by the pandemic. Why now? Airbnb was under pressure from employees and investors who have waited over a decade to cash out, some of whom have stock option restrictions that expire early next year. That detail alone shows how a pandemic IPO makes sense. The company also had other incentives to raise capital, including a high-interest rate on a recent $1 billion crisis funding deal, The Wall Street Journal reported in April. In short: Even a bad IPO today would still meet a number of business objectives.
3. The markets are trading at record-high levels
Investors are putting their wallets behind the idea that the economy will roar back into action immediately post-pandemic. Whether that’s true or not remains to be seen: A recent letter to Congress by 127 top economists warned that the sort of economic damage America will experience this winter is not swiftly reversible without a massive stimulus package. But in the markets, perception and hype are everything, and current common wisdom is that it’s best to get in now and not miss out on next year’s supposed surges, especially with vaccines on the way. Mad Money host Jim Cramer’s advice to investors on Airbnb is illustrative: “I want you to own Airbnb because it’s set to have a terrific year starting next March.”
4. Online roadshows work surprisingly well
Wall Street quickly realized in late spring that IPO roadshows, where CEOs pitch investors, translate well into online form—at least for well-known companies that easily attract investor meetings. There are benefits to doing this process virtually: Rather than spending a month traveling around the world, executives can talk to investors back-to-back for a week online and then IPO, thereby not risking the markets collapsing during the month-plus that this process previously took.