The pandemic created the hottest IPO market of all time

All eyes on inflation.
All eyes on inflation.
Image: REUTERS/Amir Cohen/File Photo
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A plague is upon us. Businesses are shuttered and layoffs are rampant. The US government is deadlocked over plans to provide economic relief.

And there’s simply never been a better year to raise money on the US stock market—especially if you own a tech company.

In the second week of December, three tech firms—rental booking giant Airbnb, food delivery titan Doordash, and AI software-maker—are set to go public. Each of them has raised their IPO price ranges in recent days in anticipation of ravenous market demand. If they hit the upper end of their targets, the trio will raise a cool $6.7 billion.

That’s on top of the $149 billion that US firms have already raised on the IPO market this year. Accounting for inflation, that sum teeters right on the edge of breaking 2000’s record for public listings. This week’s stock market debuts will almost certainly push 2020 over the edge. And next week, e-commerce marketplace Wish will push the record even further when it raises an expected $1.1 billion.

Much of this year’s IPO value comes from tech companies, which have seen their valuations shoot up as the pandemic created massive demand for video conferencing, food delivery, online shopping, and other digital tools that make hunkering down more bearable. That came after a string of successful tech IPOs at the tail end of 2019 from companies like Chewy and Peloton.

“A lot of these IPOs really benefited from the pandemic,” said Danielle Shay, director of operations at investor education site Simpler Trading. “These companies started taking off, and it became a snowball effect because investors saw that 2019 IPOs were doing really well and then they started doing even better at the beginning of 2020.”

The pandemic also brought a wave of new investors into the stock market. Stuck at home, millions of Americans made accounts on stock-trading app Robinhood. Investment firm Fidelity saw trading volume rise 97% in the third quarter year over year, while the Nasdaq saw equity options trades go up by half. The New York Times reported on bored sports bettors who transferred cash from their bookies to the stock market because their favorite leagues had suspended play.

“You have a huge influx of new traders into the market that have heard stories of IPOs being incredibly successful,” said Shay. “Now you have tons of new investors in addition to [institutional investors] all piling into these IPOs.”

That state of affairs may raise alarm bells, given that the last year to set a record for US IPOs was 2000—the height of the tech-led dot-com boom, which was quickly followed by a massive bust. But Shay says that, despite the widespread speculation and low federal interest rates that have combined to inflate valuations this year, she sees real value in the fundamental businesses of Airbnb and Doordash.

Dan Ives, an analyst at Wedbush Securities who has been watching the markets since before the dot-com crash, agrees. The pandemic, he says, really has accelerated the growth of tech companies, which are in turn generating real value for the economy. “I’m not saying there’s not some froth in some pockets,” he said, “but it’s a transformational backdrop for tech stocks.”

Time will tell whether they—and the millions of new investors who will doubtless buy a piece of Airbnb, Doordash, and this week at towering valuations—are right.