An initial public offering (IPO) is a formal process in which a private company “goes public.” As the name implies, IPOs occur the first time a private company raises money through the sale of shares on a major stock exchange (primarily the New York Stock Exchange or Nasdaq-100). Typically, institutional investors buy these shares.
Moreover, most IPOs increase as volatility in the market decreases. 2019 was a bit of an anomaly in that sense. And despite the stock market being volatile, there were a number of successful IPOs. In fact, the Renaissance IPO ETF (NYSEARCA:IPOS) — which tracks newly public companies — generated a 29% gain in 2019.
Companies such as Lyft (NASDAQ:LYFT), Peloton (NASDAQ:PTON), Beyond Meat (NASDAQ:BYND) and Zoom (NASDAQ:ZM) went public on the NASDAQ. Meanwhile, Uber (NYSE:UBER), Pinterest (NYSE:PINS) and Levi Strauss (NYSE:LEVI) were three of the notable IPOs on the NYSE.
However, 2020 is turning out to be a different story for IPOs. The IPOS ETF is down nearly 2% in 2020, and financial data provider Refinitiv cites only $119.2 billion in IPO activity this year — a 49% decline year-over-year in 2019.
The novel coronavirus and resulting Covid-19 pandemic is dampening investor appetite for new investments and the associated risk. And that means that several companies that were initially scheduling their IPO for 2020 will be putting it off for the future. Three of the bigger names include:
With that in mind, let’s dive into these three companies.
Delayed IPOs: Airbnb
The Airbnb IPO will have to wait, and this is a blessing for the popular online platform. The hospitality industry is somewhat unique in the coronavirus pandemic. This is largely because nobody knows exactly how the industry will bounce back. Telling a customer they can travel is different than customers actually traveling. And, at the same time, hotel stocks are plummeting.
That said, Airbnb allows vacationers to rent out other people’s houses or spare rooms. In turn, CEO Brian Chesky projects confidence that demand will increase once consumers get the green light. However, at this point, that optimism sounds more like a wish than a projection. But the company is taking an important first step by instituting a 24-hour delay between bookings. This gives the hosts time to institute a detailed, optional cleaning protocol.
In fact, the company stated the following regarding this topic:
“The host Cleaning Protocol will include specific information on COVID-19 prevention, such as the use of personal protective equipment, like masks and gloves for hosts or their cleaners, as well as disinfectants that are approved by regulatory authorities.”
With Grubhub (NYSE:GRUB) already public and UberEats helping to prop up Uber stock, a DoorDash IPO seemed like a logical next step. DoorDash overtook Grubhub last year, becoming the top meal deliverer in the United States. And, according to data from Second Measure — a California firm that analyzes credit card purchases — DoorDash is widening its lead during the coronavirus pandemic.
The company’s revenue grew 21% month-over-month in March. One reason for this may be because they are getting new customers, as some age groups may be using the app for the first time.
Also, like all delivery firms, DoorDash makes money by charging fees to restaurants and by charging diners for delivery. During the coronavirus pandemic, many of these companies are reducing the fees they charge to restaurants.
However, while that may be good public relations, it makes its IPO a bit more problematic. Investors have lost their appetite for companies that are not profitable, and neither DoorDash nor Grubhub are profitable. Analysts are projecting that DoorDash posted a $450 million loss on revenue of $900 million to $1 billion in 2019. That said, the DoorDash IPO may benefit on this wait.
Another company that may benefit from a delay in going public is Robinhood. The Robinhood IPO still appears to be moving forward, as reports say the company has raised approximately $250 million through an existing investor. This would make Robinhood’s pre-money valuation approximately $8 billion.
Moreover, Robinhood tapped into a notion that young investors would be willing to trade if there was an app for that. And if they could trade partial shares with no fees, all the better. That said, Robinhood is largely a site for millennial investors.
Not surprisingly, some of the most widely traded stocks include marijuana stocks and tech stocks. It’s actually the perfect place for IPOs, as many novice investors are all looking to get in on the ground floor of the “next Amazon.”
Unfortunately, the company has had a hiccup of its own during the coronavirus pandemic. The company’s site had unprecedented outages in March on the day the Dow posted its largest all-time one-day point gain. With that in mind, Robinhood’s IPO delay could actually be a good thing for this reason.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris did not hold a position in any of the aforementioned securities.