IPO Mania (EP.181)

Episode Summary

Executive Summary: The episode centers on the IPO frenzy around Airbnb and DoorDash, arguing that the huge first-day pops reflect scarcity, investor appetite, and market structure more than simple “money left on the table.” The hosts connect this to broader speculation in markets, SPACs, retail trading, and asset prices, while also discussing vaccine progress, Disney’s pivot to streaming, Stripe’s rise, student debt and evictions, and listener questions on concentrated bets and account structure.

Main Topics: Airbnb IPO and the mechanics of IPO pricing (Priority: 5/5): The hosts debate whether Airbnb underpriced its IPO, who benefited from the first-day pop, and why supply/demand dynamics make the classic 'left money on the table' critique too simplistic. DoorDash, delivery economics, and speculative valuations (Priority: 5/5): DoorDash is used as a contrast to Airbnb: the business model seems weaker to the hosts, yet the stock still surged, highlighting how speculative enthusiasm can override traditional fundamentals. Market speculation, retail behavior, and the new bubble environment (Priority: 5/5): They compare today’s IPO mania with 1999, but argue the current cycle is shaped by Robinhood, fractional shares, low rates, and investors who are increasingly willing to pay for future growth now. SPACs, scarcity, and the eventual supply wave (Priority: 4/5): The conversation shifts to the enormous amount of capital in SPACs and the idea that a flood of supply—not just demand—may ultimately cool the mania, potentially forcing bad acquisitions. Pandemic winners, losers, and uneven recovery (Priority: 4/5): The hosts discuss the vaccine rollout, eviction risks, and the bifurcated economy: some companies and workers are thriving while millions remain under severe pressure. Disney, streaming, and corporate reinvention (Priority: 3/5): Disney is highlighted as a major pandemic-era winner thanks to Disney+, with the hosts praising the strategy and imagining future opportunities like Disney-branded movie theaters. Listener questions: concentrated bets and account allocation (Priority: 4/5): They advise against putting 50% of a portfolio into one stock and note that tax location matters less than asset allocation and behavior. They also discuss how to think about winning positions like Tesla.

Key Arguments: Airbnb’s opening-day pop was driven by limited shares offered and intense demand, not simply by bankers underpricing the deal. IPO first-day gains are often the entire source of outperformance; if investors miss the allocation, they miss the main upside. Current market behavior resembles a long-running speculative cycle more than a single short-term bubble burst, with retail access and low rates accelerating it. Airbnb appears to be the stronger long-term business compared with DoorDash because its global scale and travel platform have more durable growth potential. The end of speculative excess will likely come from supply—more IPOs and more SPAC acquisitions—rather than a sudden change in investor psychology. Despite market exuberance, the economic recovery and vaccine progress are real, and low-income workers may benefit if labor markets tighten again. Investors should not let a few huge winners convince them to make oversized concentrated bets; position size matters because no one can predict outcomes in real time.

Data Points: Airbnb guest arrivals: Over 825 million - Hosts welcomed this many guest arrivals across 220+ countries and regions Airbnb cumulative host earnings: Over $110 billion - Referenced from the company’s S-1 filing US IPO capital raised in 2020: Over $140 billion - Wall Street Journal figure cited as of 2020, exceeding the 1999 record Prior annual US IPO record: $107 billion - Dot-com peak in 1999 IPO investors’ one-day gains in 2020: More than $50 billion - Axios statistic on allocations held for one day Average first-day IPO return (Jay Ritter): 18% - Historical IPO average from 1980–2015 IPO market-adjusted underperformance after first-day pop: -18% over three years - Jay Ritter study suggesting the pop often captures most outperformance 2020 IPOs doubling on day one: 19 - By far the highest since the turn of the century 1999 IPOs doubling on day one: 117 - Comparison year during the dot-com bubble 2000 IPOs doubling on day one: 78 - Still extremely elevated versus recent years Airbnb first-day opening price: $146 - Shares opened far above the IPO price Airbnb IPO offer price: $68 per share - Referenced as the initial price before price hikes Potential additional proceeds for Airbnb: $4 billion - Bloomberg estimate of what could have been raised if priced near the open DoorDash third-quarter revenue growth: 268% - Used to illustrate pandemic-driven demand acceleration DoorDash/airbnb shares sold in IPOs: About 10% / about 8% - Bloomberg cited scarcity of float as a reason for huge pops SPAC IPO dry powder: $61 billion - Goldman Sachs figure for capital searching for targets Microsoft bond yield: 0.196% - December 1 secondary market yield on a 2022-due bond Treasury spread on Microsoft bond: 0.03 percentage points - Microsoft borrowing almost at US government rates Eviction risk: 2.4 to 5 million households - Households at risk if protections expire in January Eviction filings already made: More than 150,000 - Landlords have filed petitions but cannot yet evict under the moratorium Lowest-income workers’ income growth: Outpaced all cohorts for 4 straight years (2015–2019) - Derek Thompson’s point about pre-pandemic wage gains Working poor without bachelor’s degree: More than 70% - New York Times statistic about currently unemployed workers Unemployed without college attendance: 43% - Shows education gap among the unemployed US educational debt held by top 40% of households: 60% - Argument against broad student-debt cancellation as a targeted fix Time to open a bank account: 5.5 days on average - Stripe research cited by Ben Thompson Businesses required to send a fax to open an account: Around 1 in 4 - Illustrates outdated banking infrastructure Businesses required to visit a branch in person: Over half - More evidence of friction in traditional financial services Tesla investment example: $10,000 became $147,000 - Illustration of the power of concentrated winners over five years

Pivotal Quotes: "In more than 220 countries and regions around the world, our hosts have welcomed over 825 million guest arrivals and have cumulatively earned over $110 billion." — Michael Batnick: Reading a key statistic from Airbnb’s S-1 to frame the company’s scale "As a rule, when stocks are first listed, they sell much higher than they do a short time afterwards." — Jamie Catherwood (quoted from 1922 source): Historical reminder that IPO pops are a longstanding phenomenon "We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air... what time is it? What time is it? But none of the clocks have any hands." — Adam Smith (quoted by the hosts): Used to describe the difficulty of knowing when a speculative market will end

Implications: Listeners should expect continued volatility in IPOs, SPACs, and high-growth names as retail access, scarcity, and momentum remain powerful. The bigger lesson is to size positions carefully, avoid hindsight-driven regret, and recognize that market excess can persist far longer than expected.