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November 30, 2020

DoorDash and Airbnb lead a parade of unicorn IPOs

Demand for initial public offerings has roared back to life on Wall Street, led most recently by highly anticipated debuts from Silicon Valley darlings Airbnb and DoorDash, which are both expected to begin trading in December.

DoorDash disclosed in its latest filing with the Securities and Exchange Commission Monday that it was looking to price its IPO between $75 and $85 a share and that it plans to have about 317.7 million shares outstanding.

At the high end of that range, DoorDash would be valued at $27 billion -— up from a valuation of $16 billion the last time the delivery service raised money in the private markets, according to CB Insights.

There is expected to be intense interest in DoorDash, which competes in the lucrative food delivery business with Uber and Grubhub, which was acquired this summer by Netherlands-based Just Eat

Airbnb will also be closely watched for signs of how the hospitality sector recovers after the Covid-19 pandemic crushed demand for travel. The company was valued at $18 billion earlier this year — still massive, but a sharp pullback from the $31 billion it commanded before coronavirus.

Nonetheless, IPOs (and tech IPOs in partciular) are back in a big way. Software firms Snowflake, JFrog, Sumo Logic and Unity have already enjoyed stellar debuts this year.

"It is amazing how quickly the traditional IPO market came back," said Frank Lopez, co-head of the global securities and capital markets practice at law firm Paul Hastings. "It's actually now a better market than we've seen in a long time."

Wounded unicorns have roared back to life

The revival of the IPO market is a stunning turnaround from just a year ago. Uber and rival Lyft went public with much fanfare in 2019, but their stocks flopped shortly after their IPOs.

And buzzy startup WeWork pulled the plug on its Wall Street debut due to intense scrutiny of its giant losses, wacky corporate culture, the ouster of CEO Adam Neumann and a bailout by investor SoftBank.

"Last year we had the Wework debacle and a hangover from Uber and Lyft. But IPO investors are once again screaming with enthusiasm," said James Gellert, CEO of research firm RapidRatings.

Gellert said that DoorDash, which has posted strong revenue growth, looks to be more attractive than Airbnb, but both companies are still losing money.

That might not dissuade investors however. Uber, after all, is still not profitable, but the stock has recovered from its pandemic lows earlier this year and is now up 66% in 2020, thanks in large part to a rebound in its core ridesharing business and growth in its Uber Eats division.

And DoorDash and Airbnb are not the only unicorns expected to test the public markets before the end of the year.

2021 shaping up to be big year for IPOs, SPACs and direct listings

Online shopping app Wish has filed for an IPO. The company is worth $11.2 billion, according to CB Insights. And video game platform Roblox, with a $4 billion valuation, is also looking to go public.

Next year could be even more active. Instacart, payment processing firm Stripe and popular stock trading app Robinhood are all said to be considering a 2021 offering.

Those companies could be the headliners in another strong class of IPOs. Coinbase, Nextdoor, Bumble and Josh Kushner's Oscar Health are also rumored IPO candidates.

"Investors in IPOs are thinking six to 12 months ahead. They are optimistic," said Wouter Witvoet, CEO and founder of Secfi, a firm that helps employees at startups finance the exercising of stock options. Witvoet said his firm is working with Airbnb and DoorDash employees.

By and large, a traditional IPO still appears to be the preferred method for top unicorns to go public. But not all companies are hiring Wall Street bankers to sell shares to big mutual funds, hedge funds and other institutional investors.

Some companies may choose to come to Wall Street via blank check mergers with special purpose acquisition corporations, or SPACs. The success of Virgin Galactic and DraftKings have helped validate SPACs as a means to join the markets.

"There are so many more options for companies now to go public," said Witvoet. He noted that Secfi is working with Hims and Hers, the telehealth company best known for its sexual wellness products. Hims and Hers is planning to go public with a SPAC called Oaktree Acquisition Corp.

Other companies that don't need to actually raise much new capital may also list their stocks directly on an exchange — a method used by big data firm Palantir, Spotify and Slack — which is now rumored to be a takeover target for Salesforce.

"Overall, there should be a meaningful increase in companies going public," said Lopez, the Paul Hastings lawyer.

Lopez added that the problems at WeWork and growing pains for Uber, which replaced founder Travis Kalanick with Dara Khosrowshahi, the former CEO of Expedia, have been a good thing for other IPOs because they have forced companies to stop acting irresponsibly.

"What is different today versus the past couple of years?" Lopez said. "Companies had been waiting longer to go public because they kept getting higher valuations from venture capitalists. But after WeWork and Uber, there is better corporate governance now."

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