Airbnb and DoorDash’s post-IPO stock pops represent an ‘epic level of incompetency,’ says a former banker who led one of the world’s largest IPOs ever

Imran Khan
  • Imran Khan told CNBC on Tuesday that the recent post-IPO stock pops including those of Airbnb and DoorDash represent an  “epic level of incompetency” from the bankers who underwrote the stocks.
  • The former banker, who led Alibaba’s IPO in 2014, said that it’s the job of the bankers to understand the market and price the IPO’s correctly: “Why are you getting paid 5 to 6% if you can’t figure that out?” Khan asked.
  • “When the stock doubles for a very high large market cap company, clearly something didn’t work right here,” he added.
  • Shares of both Airbnb and DoorDash skyrocketed after their public debuts.
  • Visit the Business Insider homepage for more stories.

Imran Khan told CNBC on Tuesday that the recent post-IPO stock pops including those of Airbnb and DoorDash represent an “epic level of incompetency” from the bankers who underwrote the stocks. 

The former banker who led Alibaba’s IPO in 2014 said that it’s the bankers job to understand the market and price the IPO’s correctly. Right now, bankers could be doing a “much better job,” said Khan. Airbnb leaped 115% on its first day of trading-its IPO offering price was $68, but it went on to hit an intraday high of $165. Meanwhile, DoorDash opened at $182 on its public debut, 78% above its initial-public-offering price of $102.

Khan also said that DoorDash and Airbnb were not obscure companies, and that bankers should have known better.

“Why are you getting paid 5 to 6% if you can’t figure that out?” Khan asked.

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“When the stock doubles for a very high large market cap company, clearly something didn’t work right here,” he added. 

Khan was also the chief strategy officer of Snapchat during its 2017 IPO. SNAP gained as much as 52% on its first day of public trading.

The Verishop founder and CEO said that these that these stock pops are causing investors to lose confidence in the IPO process. He doesn’t think the system of bringing companies to market is broken, but he said bankers could perform better.

“I think when the market gets really busy, a lot of the times bankers get really focused on chasing deals and client management, as opposed to doing their job,” said Khan. 

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‘It’s silly season’: Airbnb and DoorDash’s IPO rallies signal return of dot-com-era greed, strategists say

Airbnb IPO
The Nasdaq digital billboard in Times Square in New York on December 10.

  • Airbnb’s and DoorDash’s massive debut rallies suggest the IPO market is getting ahead of itself, top strategists said Thursday.
  • Airbnb spiked 115% when it began trading publicly for the first time on Thursday. DoorDash closed 86% higher in its Wednesday debut.
  • The first-day climbs revealed “euphoria and greed” last seen in the market during the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said.
  • “It’s silly season,” and investors need to differentiate between “a great company and a great price or value,” Rich Steinberg, the chief market strategist at the Colony Group, told Business Insider.
  •  Visit the Business Insider homepage for more stories.

Airbnb’s and DoorDash’s colossal post-IPO pops reveal unsustainable euphoria in the stock market, top strategists said.

Some of the year’s biggest initial public offerings took place this week, adding to an already record year for market debuts. DoorDash soared 86% when it began trading on Wednesday after raising $3.2 billion through its offering the day prior. Airbnb leaped 115% when it began trading Thursday afternoon, pushing its market cap above $100 billion and raising $3.5 billion.

The first-day rallies, while extraordinary, show “euphoria and greed” that’s likely not been seen in the stock market since the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said. Many investors are rushing to the new stocks, wanting to get in at any price, but such massive IPO bounces usually give way to similarly outsize losses, he added. 

“It’s silly season,” Rich Steinberg, the chief market strategist of the Colony Group, told Business Insider. “Investors need to distinguish the difference between a great company and a great price or value.”

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Both strategists attributed some of that euphoria to the near-zero interest rates expected to stay put over the next three years. The Federal Reserve’s plan to hold rates at record lows leaves investors with fewer places to put their money, as the policy suppressed Treasury yields early in the pandemic. The Fed’s backstop of the corporate credit market placed similar pressure on bond yields.

The combination of near-zero interest rates, a “tsunami of liquidity,” and hundreds of billions in unallocated investor cash fueled the two buying sprees, Schatz said.

The week’s booms might be only the start. Investors could face “complete and utter mania” across the IPO market in the first half of 2021 as more firms look to tap the market while demand remains strong, the Heritage Capital president said. Investors should avoid trying to time such volatile debuts and instead be patient until stock prices better reflect firms’ fundamentals, he added.

“Being the last guy buying the opening of a hot IPO, at the height of this speculative excess in some of these names, typically does not end well,” Steinberg said. 

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Read the original article on Business Insider