Thursday, February 29, 2024

Wall Street IPO Bonanza stirs up worried memories of ’90s dotcom mania

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The surrounding frenzy Airbnb’s beginnings on Wall Street started hours before the first exchange. As bankers scrambled to establish an open price, the number of options contracts changing hands at robotics maker ABB skyrocketed. The apparent flub boiled down to a single letter: ABB was missing an N in its ticker that would otherwise denote Airbnb.

The ABB rush was quickly overrun by an avalanche on Airbnb, which more than doubled in value Thursday in a throwback to the kind of mammoth pops that came to define the dotcom boom of the late 1990s. Day, Airbnb was worth $ 86 billion – on par with Goldman Sachs, the bank that helped bring it to market.

The renewed fervor for an IPO of a highly regarded technology has sparked unease among many investors who remember the dotcom collapse with trepidation. Only three other companies raising at least $ 1 billion in the United States climbed more on Day 1 than Airbnb – and the trio did so between March and June 2000, according to Dealogic. The group included Palm, maker of the PalmPilot mobile device.

“We’ve all been in the market long enough to know this isn’t ending well,” said Jim Tierney, investment director of US Concentrated Growth at AllianceBernstein. “It’s a sign of foam, a sign of incredible demand, a sign of a retail investor who. . . just wants to come in.

Airbnb’s stock rush, as well as buy frenzy in DoorDash earlier in the week, was in stark contrast to the reception large private companies received for much of 2019 when a high profile debut love uber and Lyft have been encountered with investor apathy. Others, including those launched and then aborted wework float, has faced scrutiny from portfolio managers who have questioned how bankers balance their multi-billion dollar valuations with loss-making transactions.

The listings accompanied a rally in tech stocks this year after the Federal Reserve and the U.S. government triggered an unprecedented stimulus to stem the economic fallout from the pandemic. This is one of the reasons why investors were willing to take shares during the early days of these tech companies, even as their valuations continued to emerge. independent of standards, said bankers and asset managers.

Retail investors supercharged the $ 42 billion U.S. stock market gains, piled on stocks and moved markets as we last saw before the Nasdaq crash in 2000. Michael Baumann , syndicated trader at Fidelity. Their presence, which was mostly absent last year, is a factor that major fund managers now consider when placing orders for IPOs.

“You have institutional investors doing extreme diligence on these companies and setting up a valuation framework, and then the beginnings come in and you get those euphoric after-market results,” he added. “We don’t think this is institutionally driven.”

The companies exploited demand to raise a record $ 149 billion through initial public offerings in the United States this year, according to Refinitiv. This includes seven consecutive unprecedented months of more than $ 10 billion flotation. Even ruling out a blank check company boom, the IPO frenzy is proceeding at its fastest pace since 2014, despite the slowdown in new listings in March when the pandemic caused the markets to fall.

Raised product column chart (in billions of dollars) showing US IPO boom reaching new highs

Big gains for big tech stocks this year have been a boon to private groups when they’ve staged their IPO virtual tours.

Investors came in droves when the cloud company Snowflake went public in September, betting it would take advantage of companies moving their operations online. Its stock more than doubled when it started; even Warren Buffett’s Berkshire Hathaway, long known for his love of good deals, bought it. A similar story played out for DoorDash, which benefited from the food delivery boom.

Line graph of Renaissance IPO exchange-traded fund total assets (in millions of dollars) showing investor race in the fund following newly listed companies

Airbnb, which allows users to rent their homes to travelers, marked a turning point for investors as its business, unlike many tech companies, was still battered by the pandemic. Fund managers are now betting that global vaccine deployments will help companies worst hit by the pandemic survive the recession, including those in the travel and hospitality industry.

The deluge of new issues is expected to continue next year, according to bankers. Robin Hood, the retail app that has helped foster a new generation of day traders, is working on an IPO that could come as early as next year, people familiar with the matter said.

Jane Dunlevie, co-director of global internet investment banking at Goldman Sachs, estimated there were still hundreds of large companies on the sidelines, with more than 70 worth more than $ 5 billion.

“The super cycle will continue,” she said. “The impact of tech companies has probably never been greater. Covid, in particular, has ramped up some activities, but it has also tested some of them that have become stronger. ”

There are signs investors are already following the gains, with fund flows expanding rapidly for a Renaissance Capital exchange-traded fund investing in IPOs.

“When the IPO market is wide open, aftermarket deals can get frothy,” said Matt McLennan, head of global value at First Eagle Investments. “It’s an expression of investor confidence and maybe there is too much confidence right now.”


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