The DASH and ABNB IPOs turned out to be some of the biggest of the year. As is often said, the best should be saved for last, and that appears to be the case with these two popular public offerings.
However, there is no guarantee ABNB and DASH will continue to ascend after the IPO euphoria fades. In fact, there is a good chance one or both of these stocks could dip before the new year.
So, which of these two IPOs is better for your portfolio? Let’s take a closer look at DASH and ABNB to help you make the right choice.
DoorDash Inc. (DASH)
Shares of DASH soared nearly 90% on its initial day of trading, sending its market cap up to $72 billion. In other words, DASH has a greater market cap than the likes of Chipotle (CMG) and Domino’s Pizza (DPZ). This is quite the shocking truth simply because CMG and DPZ are stalwarts of the food industry and have been trading for years.
DASH and ABNB were downgraded earlier this week after analysts determined both stocks were priced higher than fair value. While analyst DA Davidson bumped up his DASH price target from $93 to $150, it is still lower than its current price of $159.
DASH is a risky investment simply because the company has lost around $150 million through the first three financial quarters of this year alone. Though DASH will certainly benefit from the trend of residents fleeing cities for the suburbs where it is perfectly positioned for food deliveries, it is clearly going to take some time for the company to become profitable.
This is not the optimal time for ABNB to go public simply because people are not traveling as usual during the pandemic. However, the slide in travel did not stop investors from loading up on ABNB stock based on future expectations. ABNB spiked at its debut, more than doubling before the first trade even though its bookings have dropped more than 70% amidst the pandemic. The stock then slid 25% as reality set in.
The plain truth of the matter is we are still mired in a pandemic, meaning people are not inclined to visit new locations and stay in strangers’ homes. This means it will take some time for ABNB to reestablish momentum. Keep in mind ABNB downsized nearly 2,000 employees this past spring, cutting its workforce by one-quarter. Furthermore, revered analyst Gordon Haskett downgraded the stock from “Buy” to “Underperform,” indicating ABNB has the potential to suffer a 20% decline in the months ahead.
It is quite shocking to learn ABNB is worth nearly six times the valuation of the company’s debt raised this past spring. PitchBook reports ABNB is now worth more than the combined market caps of many of its primary hotel competitors. For example, if you were to add up the market caps of ABNB’s rival hotels in Hyatt, Hilton, and Marriot, it would be around $80 billion. ABNB’s opening trade represented a market cap over $101 billion.
In other words, ABNB is overvalued. It might take a couple of years or longer to justify the stock’s egregiously large market cap.
The bottom line is it will take a while for traveling to resume to normal as the pandemic winds down. ABNB has much more of an uphill battle than DASH in the months ahead as ABNB is travel-dependent. Alternatively, DASH is poised to benefit from the average person’s fear of public places during the pandemic, conveniently delivering food to customers’ homes with remarkable efficiency.
Investors intent on getting in on the IPO action would be better off with DASH in their portfolio but takes its high valuation into account. ABNB is more of a long-term play worth considering when it appears the travel industry will return to at least a semblance of normalcy, possibly at some point in the second half of 2021.
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DASH shares were trading at $155.85 per share on Thursday morning, down $2.20 (-1.39%). Year-to-date, DASH has declined -17.76%, versus a 17.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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