2020 has proved to be a record year for IPOs despite the ongoing pandemic, largely as a result of investor confidence in what the market could look like in 2021, when the worst effects of the pandemic could have subsided.
Vacation rentals platform Airbnb, Inc. and food delivery service DoorDash Inc. are at the center of what will prove to be the busiest December on record for initial public offering (IPO) activity.
The two startups, whose public offerings have been in the works for some time, are going public in December, aiming to raise a combined value of around US$6.2 billion from investors.
Early signs have already suggested that shares in the two companies are much in demand, with prices adjusted to reflect this.
The public offerings of Airbnb and DoorDash aren’t just creating records for December alone. Instead, they are adding to what has already been a record year for companies choosing to go public.
In the midst of a pandemic that has badly afflicted the United States and caused economic turmoil, attempting to raise money from investors may seem counterintuitive or poorly timed.
But 2020 has proved to be a record year for IPOs despite the ongoing pandemic, largely as a result of investor confidence in what the market could look like in 2021, when the worst effects of the pandemic could have subsided.
The coronavirus pandemic is by no means over in the US.
Current figures show an average of more than 200,000 new cases of the virus each day, with total US deaths now creeping toward the 300,000 mark.
Yet despite the unrelenting nature of the pandemic in the US, 2020 has proved to be a record year for IPOs of US companies.
In 2019, the US saw 159 total IPOs. Though there were only 64 IPOs in the first half of 2020, there has been a staggering upsurge in IPO activity toward the end of the year.
Between July 1 and September 30, there were some 165 IPOs, raising over US$61.5 billion for that quarter alone, a massive increase of some US$47.8 billion over the same period last year.
Stacey Cunningham, the president of the New York Stock Exchange (NYSE), said at a virtual tech conference organized by Fortune magazine that 2020 was a “historic year when it comes to IPOs. We had the busiest year we’ve ever had in the history of the NYSE.”
2020’s IPOs have not been small, either. The big data analytics firm Palantir Technologies staged an IPO in September, which ultimately valued the firm at some US$21 billion.
One of the biggest tech IPOs of the year was the cloud data warehouse vendor Snowflake, which raised US$3.4 billion, the most ever for a software firm. This fundraising valued the company at US$70 billion, almost six times its US$12.4 billion private valuation earlier in 2020.
According to Alfred Véricel, co-founder and managing partner at investor Red River West, with both the US presidential elections and news of vaccines out of the way, late 2020 has proved to be a “very pragmatic” time for companies to go public.
This may at first sound illogical. Unemployment in the US remains high and there are signs that suggest the economic recovery from the coronavirus pandemic may have slowed.
But, when considering market activity, it is important to remember that the market is not the economy, but one piece of a larger puzzle. Companies choosing to go public amid a record-breaking stock market does not suggest that the wider economy is by any means healthy or recovered.
According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the market is always asking “we know where we are today, but where are we going tomorrow?”
And two companies looking ahead to the future are vacation rentals startup Airbnb and food delivery platform DoorDash.
Both companies have had vastly different experiences of the pandemic.
For Airbnb, the pandemic targeted the company’s main line of business – tourism. Though bookings collapsed, through the combined efforts of cost-cutting and focusing on COVID-proofing its properties, Airbnb has largely survived the pandemic and is slowly returning to ordinary business.
On the other hand, a shutdown in hospitality and sit-in restaurants caused, and continues to sustain, a surge in food delivery services. For DoorDash, this has been welcome and in line with its main business.
Both companies are now seeking to go public in December. In doing so, the two companies are looking to raise a combined value of US$6.2 billion, which will in turn push the IPO volume of the month to record levels past the US$8.3 billion mark set in the Decembers of 2001 and 2003, making December 2020 the busiest December on record for IPO activity.
Airbnb is aiming for a valuation of as much as US$42 billion, while DoorDash is aiming for US$35 billion, potentially more than double their private valuation in their last fundraising round in June 2020.
Airbnb and DoorDash are not alone, however. With the US elections over and vaccine news suggesting a more positive 2021, companies are rushing to go public to extend their growth into 2021.
DoorDash and Airbnb will be joined in their IPOs by fintech company Affirm Holdings Inc., online video game Roblox Corp., Wish parent ContextLogic Inc. and enterprise software company C3.ai.
Alongside Airbnb and DoorDash, these IPOs are expected to raise somewhere in the region of US$9 billion for the month of December alone, smashing previous records.
Despite the pandemic, businesses have joined in a flurry of IPO activity, seeking to raise extra capital and investment, especially as private fundraising has proved more difficult during a time of economic uncertainty.
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