Airbnb (ABNB) and DoorDash (DASH) IPOs: One Day Apart But Timing Is Completely Different

At first glance, the stock market debuts of DoorDash (DASH) yesterday and Airbnb (ABNB) today are remarkably similar. They are among two of the last of the OG "unicorns," massive, household name tech companies that found seemingly limitless amounts of venture capital and private equity funding and were able to stay private for a relatively long time as a result. Both saw estimates of their stock’s initial offering price climb and then still exceeded estimates for the actual offering, and both have received a lot of media attention.

You might think, then, that a logical view of the prospects for each stock would be the same. If so, you would be wrong. There is one major difference between the two and it is that difference, not the similarities, that informs how investors should look at each stock from a longer-term perspective.

Both stocks are being offered after just about the strangest nine months in the history of the U.S. and global economy, and of the stock market. Back in March, just about everything was shut down in an effort to contain Covid-19 and as the pandemic has seemingly retreated, only to surge again, consumer behavior has changed dramatically. The effects on these two companies could not be more different.

Staying at home and ordering food delivery from your favorite restaurants, as opposed to dining in, became not just a good idea, but in many cases, your only option. Traveling of any kind, not so much. Little wonder that while DASH has been posting triple-digit revenue growth coming into its IPO, ABNB has actually recorded a decline in their top line.

In this growth-obsessed environment, this led to increased demand for DASH, and the stock jumped around 85% from its already higher-than-anticipated offering price. Yesterday, when I wrote about the DASH IPO, I said that while those buying at the $102 offering price would almost certainly be able to bank a quick profit, I would be wary of buying at these elevated levels in the first few days or weeks of trading.

That was for a few reasons, but mostly because of timing. DASH is going public at the best possible time for them, when their business is being inflated by extraordinary circumstances that we all hope, pray and assume will soon be a thing of the past. That maximizes the return for early investors, but how much upside does it leave for those late to the party?

The situation for ABNB is just about the complete opposite. The lockdowns and stay-at-home culture that have dominated 2020 are obviously not exactly beneficial for a company that relies on travel and tourism. And yet, somehow, Airbnb has managed to not just get through these hard times, but actually to do quite well. Remarkably, in what you might expect to be a very tough three months, Airbnb actually turned a net profit of $219 million in Q3 2020.

Admittedly, revenues were down, but by only 19% on last year which, given the circumstances, looks like a huge win. They did all that by reacting quickly to changes. They rationalized and cut costs internally and changed the narrative to point out that for those who traveled despite the pandemic, staying in a house made more sense than a hotel.

Then there is the situation with regard to competition. DoorDash has been incredibly successful, but so are others offering the same service. Some of those competitors, such as Uber Eats, will have advantages going forward such as name-recognition and/or deeper pockets. Airbnb has competitors too, but has the advantage of having become the generic term for the services they offer. “Get an Airbnb” has become the alternative to “Get a hotel room” even if you end up using another company.

Many people would think that taking a company public in the midst of a pandemic was either extremely brave or completely crazy, but that is to ignore the fact that markets are nudging record highs and there is a massive appetite for risk among investors. In that context, an initial surge in a stock like DASH is no surprise at all, and a similar first day for ABNB today is distinctly possible in the current environment.

That being said, at some point boring, traditional things like long-term growth prospects, the competitive environment, and the ability to make money will determine valuation. When that point comes, would you rather own the stock that launched at the height of its good fortune, or the one that went public at what should have been the worst possible time for its business and still managed to not only limit the damage, but even make money?

I know which I would choose.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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