Airbnb, the short-term home letting company, had planned a stock flotation (or initial public offering, IPO, as they call it in the US) earlier this year. That was put on hold by the Covid-19 pandemic, but it seems it’s back on the cards. With the S&P 500 hitting record highs this week, if it happens this year it could be the investing event of 2020.
A flotation can seem like a great opportunity for investors to get in at the start of something big. Just think how well off you’d be if you’d held Microsoft or Apple stock from the start. Apple’s market cap just broke through £2tn this week. Or, here in the UK, ASOS or Boohoo.
But when it comes to IPOs, investors tend to remember the winners and forget the flops. And we don’t have to look far for a recent flop. Its name is Aston Martin Lagonda. After flotation, the Aston Martin share price immediately headed south, and today those who bought on that fateful day are looking at a 97% loss. Aston Martin had previously gone bust seven times before its 2018 flotation. Perhaps there was a clue there.
Even the ones that turn out good can get off to a rocky start. The Ocado share price has soared in the past couple of years. But prior to that, it had only gained around 50% in the 12 years since flotation. And for most of its first seven years, the share price was below flotation price. Still, Ocado has come good now, so that’s all that matters. Oh, hang on, the company is not actually in profit.
The best of times?
Trying to time the market is largely a waste of time, because it’s really not easy. But if we can’t always find the best time to buy, perhaps we can avoid some of the worst times? Companies come to market when stock prices are buoyant and they believe they can get the most money possible for the shares they’re offloading. The folks behind the planning have worked out, effectively, what they think is the best time to sell — which means the worst time to buy.
Do you remember all those new flotations during the dotcom boom? The owners floating their companies back then chose a brilliant time to pocket the most cash they could for themselves — right at the peak of one of the maddest ever stock market bubbles. Most of those firms crashed and burned, and are long forgotten — except by those who bought the shares.
Buy at the flotation?
Anyway, what about Airbnb itself? In March this year, the company put its estimated valuation at around $26bn, which a lot of investors might think a bit rich. Since then, it has raised funds from investors that suggest a valuation more like $18bn. The pandemic has hit, the company has suffered and been forced to shed jobs, so a lower valuation makes sense now.
But will the slimmed Airbnb be worth $18bn at IPO? Or whatever it prices itself at? I can’t tell, but I know I wouldn’t buy. Not at IPO, not in a market at an all-time high.
