The Garrulous Jay – A Dash & A Wish

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“No matter which way we cut it we end up with a situation where, across any number of metrics of valuation that we have faith in, the US just simply looks like the world’s most expensive market right now. And that’s putting a lot of faith and hope in the tech stocks.” James Montier, Value Investment Guru, 19th November 2020A long, long time ago in a faraway land companies came to the stock market with valuations based on multiples of their revenues, rather than earnings. Purportedly worth billions of dollars, these strange beasts, known at the time as “dotcoms”, were valued like this because they had never made any money upon which to place a multiple, but they held out the potential for almost unimaginable growth.

The sages of the time argued that profits were a foolish pursuit for companies with such alluring expansion prospects, and that investors should focus on things such as the addressable market (perhaps the entire population of planet earth), click rates, disruptive business models, paradigm shifts and so on. To such people a profit was almost a badge of shame: an admission that management lacked the imagination to deploy the cash their companies might one day make…or continue to raise from insatiable investors.

And so it came to pass that in the year 2000 the tide went out, metaphors were mixed and the emperor was found to be wanting for a pair of swimming trunks.
Roll forward to December 2020. The past week has seen DoorDash & Airbnb both come to market in the US, while Wish, Roblox and Affirm all announced or confirmed plans to list their shares before the end of the year. DoorDash finished up 86% on its first day of trading on Wednesday, and Airbnb more than doubled yesterday. These companies are, respectively, a food delivery business, Airbnb you’ve probably heard of and maybe even used, an online retailer, an online games platform and a consumer lender.

Each of them may have great business models, and they may go on to enjoy many years of profitable growth.

But timing is everything, and that goes as much for when companies choose to come to the market as when investors choose to buy their shares.

In the case of at least two of these companies, DoorDash and Wish, there is also an additional twist that was less prevalent twenty years ago: the use of multiple share classes that will leave control firmly in the hands of the founders or senior management of these businesses, with other shareholders being asked to come along for the ride holding a different class of shares.

To sum up, this could be a dash for the IPO door based on wish-ful thinking: not a game I would want to book myself in to, let alone borrow to play.

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