DoorDash on Thursday filed paperwork for its initial public offering, but the “confidential” nature of the documents likely signals it’s not imminent. Given the equity selloff — on top of what is already a challenging backdrop for new public listings — the IPO market might be shut for quite some time, according to one veteran IPO analyst.
“The IPO market is basically going to go on a holiday,” said Kathleen Smith, principal at Renaissance Capital, which provides IPO research and runs an ETF that tracks new issues. “These IPOs are going to stop and wait for this market volatility to come down. Because when you have this market volatility, you have to even price in a greater discount than might be normal to get an IPO done.”
The Renaissance IPO ETF has risen 3.2% this year after a 34% rally in 2019, but it has fallen 8.6% since its recent high.
“Until that product starts to turn upward again, we will not have an open window for IPOs,” Smith told Yahoo Finance’s On the Move. “Valuations are going to be reset. And then we will start to see issuance. And the good news is, when we start to see it, they tend to be the better companies with the most attractive valuation.”
A gulf between private and public valuations
DoorDash is the most recent company to illustrate the gulf that exists between private and public valuations. Even after the canceled WeWork IPO, privately-held unicorns still far outvalue their publicly-traded peers. DoorDash’s most recent funding round, for example, valued the food delivery service at nearly $12 billion. Its most analogous publicly-traded counterpart, Grubhub (GRUB), is valued at just over $4 billion.
“If DoorDash thinks they can go through the back door to be public, I think they’ll be sorely disappointed,” she said. She thinks the direct listing process generally has drawbacks, including no lockup period for insiders.
Spotify (SPOT) began trading on April 2, 2018, and has risen less than 4% since, compared with a more than 15% gain for the S&P 500. Slack (WORK) is up about 2% since its direct listing on June 19, 2019, versus a roughly 4% increase for the S&P 500.
Julie Hyman is the co-anchor of On the Move on Yahoo Finance.