A frenzy has hit the market for newly listed tech stocks.
Last week, searing demand sent
DoorDash Inc.’s
stock up 86% in its trading debut Wednesday, while
Airbnb Inc.’s
shares more than doubled in their debut a day later. Airbnb Chief Executive
Brian Chesky
was at a loss for words in a Bloomberg TV appearance when he was told of the company’s opening share price, while multiple investors in the two blistering offerings said they were puzzled by the extraordinary enthusiasm in the market.
The reception was so strong that videogame company Roblox Corp. pulled its own planned initial public offering as it tried to make sense of the market. Another startup, financial tech company Affirm Holdings Inc., also delayed its planned IPO over the weekend, although the exact reasons weren’t clear.
Valuations of recent IPOs are at their highest levels since the dot-com bubble, relative to the companies’ revenue, sparking concerns among investors about the level of froth.
The result has been that the market capitalizations of many money-losing upstarts have become larger than giant, highly profitable stalwarts of corporate America.
DoorDash is valued at $56 billion, just shy of
General Motors Co.
Airbnb is worth over $83 billion, more than
Cloud-software company
Snowflake Inc.
is worth over $100 billion, more than
Goldman Sachs Group Inc.
Investors this year have valued newly public tech companies at a median of 23.9 times the revenue they reported in the 12 months before going public, according to University of Florida business professor
Jay Ritter,
who tracks initial public offerings. That measure is by far the highest of the past two decades. For most of the 2010s, the median multiple for a tech company after its first day of trading hovered around 6 times its revenue in the prior 12 months. The same measurement for stocks on the Nasdaq Composite Index is 4.3, according to FactSet.
“I have a great deal of difficulty understanding the valuations of some of these companies,” Mr. Ritter said. The difference in enthusiasm for the unprofitable young companies and old corporate giants with consistent profits is “night and day,” he said.
The valuations imply investors are counting on years of continued rapid growth by these companies, hoping some will dominate their industries and churn out large profits, Mr. Ritter said.
Tech enthusiasts and some observers say there are concrete reasons for the enthusiasm, as businesses across the country spend more on software and…
Read More: Sizzling Tech IPO Market Leaves Investors Befuddled