The parent company of online retailer Wish will be the next technology company looking to raise more than $1 billion and take advantage of the market exuberance showcased by DoorDash's and Airbnb's initial public offerings.
ContextLogic, which owns Wish, is wrapping up its virtual roadshow with investors and the deal is multiple-times oversubscribed, according to people familiar with the matter who asked not to be identified discussing pricing. A Wish representative didn’t respond to a request for comment.
While it's unclear where Wish will end up pricing its shares on Tuesday, how it trades on Wednesday will determine whether it follows in the footsteps of Airbnb and DoorDash in fueling the debate over "money left on the table." Wish's offering is being led by Goldman Sachs, JPMorgan Chase and Co and Bank of America.
Managing the first-day “pop” responsibly and not underpricing shares is a key component in how companies are planning their own IPOs in the coming months.
DoorDash soared 86 per cent in its trading debut last week after the company’s $3.14 billion offering. The following day, Airbnb’s shares closed their first day up 113 per cen after its $3.83 billion IPO including so-called greenshoe shares.
Executives at both DoorDash and Airbnb acknowledged the pricing challenges last week, as retail demand coupled with scarce supply boosted shares. Analysts on Monday warned that first-day trading surges left the companies’ valuations at precarious levels, weighing on shares. Airbnb closed down 6.6% while DoorDash fell 8.6%.
Pricing ‘art’
Pricing an IPO is a “bit of an art,” investment banker Chris Malik, managing director at KeyBanc Capital Markets, said in an interview.
While IPOs are designed to give a premium to institutional investors taking a chance on a new stock, a big rally can leave investors wondering why shares weren’t priced higher. If the stock doesn’t pop – or worse if it falls – companies can be viewed as failures for not attracting investors.
“What you don’t want to do is price too robustly and not leave any upside in the after market,” Mr Malik said.
The debate comes near the end of what is already a record year and month for listings. More than $19 billion has already been raised in IPOs on U.S. exchanges in December – a record for the month – bringing 2020’s total to about $172 billion, according to data compiled by Bloomberg.
A smaller San Francisco-based unicorn, the lending startup Upstart Holdings Inc., is looking to raise as much as $264 million and will also start trading the same day as Wish.
IPO Delays
At least one company revisited its plans following the extreme share moves last week. DoorDash's and Airbnb's pops played a role in video game company Roblox Corp. delaying its IPO until next year, according to people familiar with the matter. The company's chief executive officer hinted in a memo to employees that the company was going to use the extra time to restructure the offering.
“We’ve seen companies take innovative approaches to creating a more market-based relationship between investors and companies,” CEO David Baszucki told employees in a memo last week. “Based on everything we have learned to date, we feel there is an opportunity to improve our specific process for employees, shareholders and future investors both big and small.”
The chief executive added that the company would work with advisers on making the improvements and is now looking at early next year for the listing.
Roblox Changes
It wasn’t clear what improvements to the process Roblox was considering. Some innovations in IPOs in recent months include allowing employees to sell a portion of their stock starting on day one, which Airbnb allowed, and shorter lock-up periods in general for insiders.
A Roblox representative declined to comment further.
Roblox also announced an acquisition on Monday of a startup called Loom.ai. Acquisitions in the lead-up to an IPO can sometimes slow the process with the US Securities and Exchange Commission since they involve updating the filing.
Another IPO candidate, installment loan provider Affirm Holdings Inc., announced an acquisition last week of Canada’s PayBright for C$340 million (€219.5 million) in cash and stock, and it also had to update its paperwork.
Affirm’s IPO could slip until next year because it’s still working on clearance from the SEC, Bloomberg News has reported, citing people familiar with the matter. However, Affirm executives and its advisers worked through the weekend and Monday in a last-ditch effort to hold the IPO this month, one of the people said.
The company will make a final decision later this week on the timing of its listing, and there’s still a chance it could be this year, that person said. A representative for Affirm declined to comment on its deliberations. – Bloomberg
