IPOs Vs SPACs

SPACs - are created with a sole purpose to raise money through an IPO for the purpose of acquiring an existing company. In a layman’s term, companies choose to go public via SPAC to avoid regulatory scrutiny. If you are not concerned in SPACS, you should. Case in point, Nikola

Unicorn Alert: The unicorn IPO parade is set to begin in the week ahead, with DoorDash (DASH) and Airbnb (ABNB) leading the way. A total of nine IPOs and two SPACs are scheduled to raise $7.8 billion.

Delivery service giant DoorDash (DASH) plans to raise $3.1 billion at a $34.7 billion market cap. With a 50% share of the US market, DoorDash is North America’s largest delivery service, facilitating over 900 million orders to date. The company turned profitable on an EBITDA basis and posted positive free cash flow in the 9mo20. However, it has invested heavily in S&M, causing losses to the spike in 2019, and it faces significant competition. DoorDash had planned to raise $2.6 billion before increasing the range on Friday.

Home-sharing startup Airbnb (ABNB) plans to raise $2.4 billion at a $31.8 billion market cap. A clear leader in the short-term rental space, Airbnb supported over 327 million nights booked in 2019. Thanks to its asset-light model and global network, Airbnb has been the fastest hospitality company to rebound from COVID-19, despite monthly bookings still not reaching pre-shutdown levels. While unprofitable, the company has posted positive free cash flow since 2016.

We believe with low entry barriers and high competition in the food delivery market place - excluding the impact of a pandemic - DASH doesn't have a unique business model to justify its "unicorn" valuation and the price range. We do not believe that DASH would be a sustainable IPO boom.

Concerning ABNB, we believe the debut timing is off due to the obvious pandemic reason. However, the valuation, in this unstable environment, is not justified. We believe that the business model will have growth after the pandemic fear tapers down. Sadly, no one can predict the mindset and the impact of the pandemic in the global marketplace. Considering the current scenario, we are unsure whether ABNB will be thriving - as its past performance doesn't justify its valuation in the current environment. 

Follow us on our LinkedIn or sign up for our monthly newsletter to access our unique, actionable short investment ideas.

If you would like to receive our December monthly newsletter for FREE, go to our website and signup to receive one more month FREE. Our weekly newsfeedNuggets of Wisdom and Folly will always be complimentary. 

Want more expert advice? Subscribe to our monthly newsletter, The Bent Ledger. The newsletter discusses short selling, distressed industries, and SPACs, along with commentary and insight on micro and megatrends. We also offer a la carte investment research/ideas.

Please email your thoughts, inputs, and questions to [email protected] or call us at 203-244-4070.