Airbnb and DoorDash sink. Analysts turn suspicious of large IPO rallies

Both Airbnb and DoorDash crashed on December 14, 2020, when critics turned down ratings following the monumental public-market debuts of both companies. 

Airbnb plummeted by as much as 10.1%, at intraday lows, while DoorDash fell 13.6 percent. Last week the two firms together raised $6.7 billion in initial public offerings back-to-back, marking a record year for IPOs. In their first days of trade, huge demand for the shares of the companies sparked significant gains, but analysts tracking the firms are growing concerned that the stocks grew above fair-trading ranges.

Gordon Haskett altered his Airbnb ranking from “underperform” to “buy” disregarding the optimistic stance he had for the company during its debut.  The firm mentioned that Airbnb is now trading at two times its approximate gross booking volume, while the average online travel group trades at a multiplier of 0.6. The home-sharing company’s estimation is “more than stretched” after more than doubling in its debut, the firm stated. The company increased its price target to $103 from $77, but the range also suggests a decrease of nearly 20 percent from current valuations.

Simultaneously, after the firm’s 86 percent opening rally, DA Davidson downgraded DoorDash to “neutral” from “buy”.  Although, due to its leadership in the food delivery market, the management thinks DoorDash deserves to trade at a premium multiple but acknowledges that its stock price leaves little room for error. From $93, DA Davidson lifted the price target for DoorDash to $150. That level implies a small drop from the current price of the stock.

Despite the change in analyst opinions and losses, both businesses still trade way above their IPO rates. Their rallies have intensified new scrutiny of market optimism, with some analysts afraid that the dot-com-era greed has led to the outsized demand for new issuances.

As of December 14, 2020, DoorDash traded at $157.51 and Airbnb at $129.33.