What DoorDash and Airbnb market debuts tell us about the IPO landscape

With the market debuts of DoorDash and Airbnb in focus, EquityZen’s Brianne Lynch joins Yahoo Finance Live to discuss the state of the IPO landscape in 2020.

Video Transcript

JULIE HYMAN: Obviously, we are seeing demand, as evidenced by what it's pricing for. What are you seeing on your platform also?

BRIANNE LYNCH: --popular company in the private markets over the past few years. There's been a lot of demand from investors. And that demand is certainly carrying over into the public markets, as we're seeing, as the valuation has been continually marked up. And it's just pretty wild to see that a company that was raising capital at a $16 billion valuation just over the summer is now being priced at about a $38 billion valuation. So very eager to see how the public market actually trades these shares once they're available later today.

BRIAN SOZZI: Brianne, why do you think we're seeing that push higher in their valuation over the past few weeks as they have been out-- as the executive team has been out on the road show? Let's be real here, DoorDash is not blowing it away in terms of profits. They have a long history of making losses. And it's unclear whether any signs of profits that they posted in their most recent quarter can be sustained as we start to open back up for business next year.

BRIANNE LYNCH: Yeah, those are all very good points. And I think one of the things that they're looking to capitalize on and that investors are buying into is the growth they've seen. They've almost tripled their revenue this year. Granted, the pandemic environment has been very fruitful for their business, with people at home ordering more takeout than ever before.

They are market share leaders. But it is a crowded market. And market share is hard to capture in an environment where promotions are a big part of delivery. So those are all considerations to take into account.

But what I think is different for DoorDash, and even Airbnb, also going public this week, is the way the roadshow has taken place. And that may play a piece in how the price has been driven up. So in this auction process that both companies are using, investors input the number of shares that they'd be willing to buy at different price points. And essentially, the company and their bankers can then determine the price of those shares and then allocate directly to investors.

So if an investor does not meet the cut off that they set, they're not getting an allocation. Perhaps this is part of what's driving the shares up, is investors wanting to get those allocations. But we've seen overall this year that IPOs have just been very warmly received by the public markets.

BRIAN SOZZI: Given the push higher, Brianne, in these valuations for Airbnb and DoorDash before-- before the IPO, is that causing valuations on your platform for still private companies, is that sending them even higher?

BRIANNE LYNCH: Yeah, what we see on EquityZen's platform is that private market valuations tend to lag what we're seeing in the public markets. But I would say that this exuberance and demand and the profitability and support that we've seen for these public companies is kind of feeding down into the demand in the private market. And we see a lot of these unicorn companies very popular on our platform. We've seen more demand than ever over the past few quarters.

JULIE HYMAN: And is the demand indiscriminate, Brianne, because it looks like it is, right? I mean, you could say on the one hand, DoorDash is a very public-facing company. It's a consumer name. Airbnb, public-facing company, consumer name. So that explains that. But we also have a lot of enterprise software plays that have come public and a lot of B2B plays that have come public and have seen similar demand. So are people just throwing cash at everything?

BRIANNE LYNCH: It's a good question. And we've seen this year that IPOs have returned over 111% versus the S&P up 16% or so. And these companies have really been able to ride this wave with the market rally, with the positive vaccine news, post-election, a little bit of a calm down of the volatility.

And they've done well. And it seems like investors are just craving yield. And these growth stories are attractive to them. Even as we've pointed out with many of these companies, profitability is not something they've achieved or something they've said they've been-- they would be able to achieve in the near term.

BRIAN SOZZI: Do Airbnb, just based on your knowledge of each company, do Airbnb and DoorDash, do they have the chances of resembling Uber? I mean, Uber, for the better part of its public life, has been an absolute dud, in large part because it was really valued so aggressively in private markets that their financials in no way have supported that early that early valuation.

BRIANNE LYNCH: Yeah. This is a big trend that we've been seeing over the past few years. And it was really the reason equities then came to be, is this change where huge growth and real opportunity is happening while these companies are still private. They're raising so much capital. They're growing so much that by the time they are teenagers ready to hit the public markets, it's questionable how much growth is left.

So that's certainly a question. And it is a reason why there's so much demand to be investing in the private markets. But I think Airbnb, for example, is a company that has shown that they've been able to right the ship during a very difficult period. They've raised debt. They've done layoffs.

They really honed in on their core part of their business. And what they're selling to investors is we have started to recover. And the best is yet to come when travel returns. So I think there is still a compelling story for them as an example.

JULIE HYMAN: I mean, to pick up on that point, what's interesting to me about Airbnb is as horrible as the last-- the sort of first six months of the pandemic were for the company, is it sort of a blessing in disguise? Did Airbnb get more disciplined as a result of the pandemic? It cut costs. It cut staff.

And maybe it's coming into the IPO in a better place than it would have otherwise. I know that's the sort of turning things on his head. But, I mean, considering it's-- we're not talking about profitability here, I wonder if it puts it on a tighter path to profitability.

BRIANNE LYNCH: Yeah, I completely agree with you there. And I would say that the pandemic has forced them to really become more disciplined and maybe grow up into a public market type company. And they took all the steps to do that. And they were very disciplined in paving that path. And the fact that they were able to be profitable in Q3 is a step in the right direction.

And I think they're painting this narrative of fiscal responsibility. And I think that's something that will resonate more with investors. And eager to see where their offering price is later today.

JULIE HYMAN: Yes, as am I. Brianne Lynch, thanks so much for being with us. It's good to see you, head of business development and partnerships at EquityZen.