Beware Hot Tech Stocks

As you might have heard, Airbnb ABNB had its long-awaited IPO (initial public offering) yesterday. Like a lot of hot public offerings this year, it was pure insanity.

Airbnb’s IPO shares were initially priced at $68 — so that’s the price that a small group of well-connected investors paid.

But shares opened for trading to everyday investors at $146 — more than double the IPO price. Airbnb closed the day with share prices at $144 and a value just under $100 billion.

Airbnb trading at a $100 billion valuation is especially interesting because back in April they raised a private round of funding that valued the company at just $18 billion (around $30 a share). So in about eight months, the company increased in value by about 5x.

I think $100 billion is quite a steep price for a business that lost $674 million on revenue of $4.81 billion in 2019. And one where bookings are down 39% so far in 2020 vs 2019…

Don’t get me wrong, Airbnb is a fantastic company. I’m sure it has a bright future. But at this price, I am steering well clear of it.

Pent-Up Demand

As we saw earlier this year with the Snowflake SNOW IPO, the big problem here is simple. The average investor didn’t even have a chance to invest in Airbnb before it was worth almost $100B.

All the wealth that was created as Airbnb increased in value from $2.4 million in 2009 to $100 billion now was captured by venture capitalists and insiders. I’m honestly happy for them — they backed a great company. But it’s a shame that public market investors didn’t even get a shot at it until now.

And when public market investors finally did get a chance to buy, they went crazy and bid the price up to silly levels. Even Airbnb founder and CEO Brian Chesky seemed shocked by the opening share price. Here’s an excerpt from Business Insider’s reporting.

Chesky appeared on Bloomberg TV Thursday morning ahead of Airbnb’s IPO. During the interview with host Emily Chang, news broke that Airbnb is indicated to open at $139 per share when it begins trading later today (that price has since climbed to $150 per share). 

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William K. 1 month ago Member's comment

Certainly some tech companies can do very well, but like we said at the one that I had been at: One step away, from riches or disaster. Really, that was it constantly.