What the DoorDash and Airbnb IPOs mean
The Weekly Pill by the BG SAXO Study Center: "High appetite for the IPO risk of DoorDash and Airbnb"
Both DoorDash and Airbnb entered a hot stock market, and both companies increased their IPO price range and experienced a sharp rally in their first trading days given investors' high risk appetite for the platforms. technologies and their growth profile. While DoorDash experienced explosive growth of 200% this year due to Covid-19, which could continue even after vaccinations, Airbnb has experienced a dramatic decline, due to travel restrictions and decreases, but from which it has recovered. strongly. Let's analyze the main characteristics of the businesses of the protagonists of the two new and expected IPOs.
THE IPOS IN WALL STREET
Last week Wall Street hosted two major US technology IPOs, those of DoorDash and Airbnb . Both companies are essentially two platforms connecting the supply and demand sides of the food and apartment rental sectors respectively.
From a technological point of view, both businesses are simple but make two physical markets more efficient and, in the case of Airbnb , the technology applied to the rental of apartments generates network effects that enhance the value of the platform. Both companies increased the price range of their IPOs prior to the pricing date and rallied strongly in the first few sessions , indicating strong investor interest in companies driving the digitalization of the economy.
The two IPOs further help mark a busy year in the number of public listings in the US, which have risen 84% since last year .
THE EXPLOSIVE GROWTH OF DOORDASH
DoorDash is an on-demand food delivery company launched in 2013 and today has 18 million consumers, 390,000 associated businesses and 1 million dashers . It is essentially a logistics platform that facilitates local shipments of goods, with food shipments forming the largest chunk of the business in 2020. One particular aspect about the company is that it has expanded its potential market share since 17 % to 50% in less than three years (graph below). This suggests that it has a good platform capable of attracting many consumers and businesses. The number of orders increased by 200% in the first nine months of 2020, compared to the same period last year, growth that allowed for greater exposure to consumers and merchants, increasing the penetration of the reference market. Volumes also reached a level almost sufficient to make the company profitable, even including the loss resulting from shareholder stock options .
The main risks to the company can arise from several factors, including the US laws and regulations relating to their dashers , i.e. whether they should be recognized as employees or not. An additional concern is the rate of revenue growth which, after a strong 2020, could stall as people are likely to go back to eating out and ordering less food at home. Furthermore, the network effects on the platform are not strong enough and, therefore, the competition is high, just think of other well-capitalized companies such as GrubHub and Uber . The company's revenues come exclusively from the US market and the company has not yet demonstrated that it will be able to export the service offered internationally. Considering Delivery Hero in Europe and Meituan in China, an international expansion may not be so easy to undertake without acquisition and integration costs.
THE BET OF AIRBNB
Airbnb is a platform that enables the sharing of rental apartments in order to connect the supply and demand side globally, and differs from the tourism sector which focuses mainly on resorts and hotels. Airbnb has substantially expanded an existing sector, through technology and a smart branding process, generating explosive growth that has however suffered a negative impact since the spread of Covid-19.
Annual bookings reached 326.9 million in 2019, which then grew at a rate of 31%, but as a result of the pandemic, the number dropped to just 28 million in the second quarter of 2020, a decline of 66. 6% from the same quarter of 2019. However, activity recovered in the third quarter and almost reached the levels of the third quarter of 2018. The company had a positive free cash flow for 4 years before the pandemic and, also While it was negative in the first two quarters of 2020, in the third quarter the company produced free cash flow of € 328 million thanks to a strong recovery, spending less on marketing and letting the brand and natural recovery do their job.
The numbers also show a recovery in domestic bookings, while international bookings are still substantially low. As a consequence of the vaccine distribution, we speculate that travel could return to pre-Covid-19 levels and that it could happen even earlier than when the market is expecting. Furthermore, although we remain positive on "leisure" travel, we believe that Covid-19 has permanently impacted business travel.
The main risks for Airbnb relate to a number of factors, including the long-term impact the pandemic has had on travel and the change in consumer habits. The company's business is also subject to possible regulations of the major tourist cities, which are trying to protect the hotel sector against offers of private apartments at lower prices. Some public events related to abnormal guest behavior in rental apartments could also lower the brand value and erode the trust of the entire platform. Depending on how long it takes to roll out vaccines globally, cash losses could continue and extend the time to break-even or possibly cause a capital increase. Competition is also high and fraudulent situations could arise on the platform that expose the company to litigation risks and price pressures. Furthermore, the platform could also be used for money laundering, which is both a risk to brand value and a potential increase in operating costs in the future.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ipo-doordash-airbnb-cosa-significano/ on Sun, 20 Dec 2020 07:00:39 +0000.