Finance -Week 4 Responses #2

Shawnetta’s Post

There are two underwriting methods, Dutch auction, and IPO. Dutch auctions have shares starting with the highest bid and descending until all stocks are sold. IPO (initial public auction) sells stocks at the lowest bid price; this way, all the bidders pay the same amount. Dutch auction issuers will have the highest proceeds, and for IPO, whoever is getting shares, investors have an equal chance to get shares. With an IPO, one can't receive the highest sale proceeds. With a Dutch auction, the first investor will have a loss due to the continuous decline of the stock price.

The Company I chose was DoorDash. DoorDash announced on December 8, 2020, that they offered stock at $102 per share with 33,000,000 shares, and the shares were expected to be trading on December 9, 2020. The underwriter for DoorDash was Goldman Sachs Co. LLC and J.P. Morgan. DoorDash paid 20 million in fees of its IPO of 3.4 billion.

At the end of the first trading day, the stock price surged 85% to $189.51. Approximately ten days later, the stock opened at $169.07, and by the close of the day, it was at $160.23. Then 30 days later, stocks opened at $152.00, and by the close, the stock price was $156.09.

The company was valued at $72 billion, which included employee-owned shares. "DoorDash raised 3.4 billion, making it one of the largest I.P.O.s of the year."(Griffith,2020) Investors invested because many people relied on food delivery services during the pandemic. The underwriters received 20 million in fees. DoorDash thrived during the first nine months with a revenue tripling. However, DoorDash had to spend cash during those nine months losing $149 million and giving a warning to investors that things were going to slow down.

References

Griffith, E. (2020, December 9). DoorDash Soars in First Day of Trading. Retrieved from The New York Times: https://www.nytimes.com/2020/12/09/technology/doordash-ipo- stock.htmlLinks to an external site.

Casey’s Post

Compare the advantages and disadvantages of using a Dutch Auction to a traditional underwriting method for an IPO.

In a Dutch auction, a company reveals the maximum number of shares being sold and sometimes a potential price for those shares. Then, investors can state the number of shares they want and at what price. Once a minimum price is determined, investors who bid at least that price are awarded shares. Simply put, a Dutch auction starts with the highest bid and then descends until all stocks are sold. In a traditional underwriting method for an Initial Public Offering (IPO), the same bidding methodology applies, however, all stocks are sold at the lowest bid price so that all bidders pay the same amount.

Dutch Auction:

Advantages – Issuers will have the highest possible proceeds obtained.

Disadvantages – The first investor will have capital loss since the stock price gradually decreases after their purchase.

Traditional:

Advantages – Investors have an equal chance to get shares.

Disadvantages – Issuers will not obtain the highest proceeds.

Identify one real-life IPO that occurred in 2020. Try to select a company that a fellow student has not already selected.

One example of a real-life IPO that occurred in 2020 is Airbnb (ABNB). Despite difficulties faced due to worldwide lockdowns during the COVID-19 pandemic, Airbnb became the largest tech IPO of 2020 as on the first day (December 9, 2020), its stock more than doubled – with the company’s valuation surging past $100 billion!

For this one IPO, determine the following:

• The initial price – Airbnb priced its IPO at $68 per share. Opened at $146 per share on the NASDAQ, far above the IPO price that raised $3.5 billion for the company.

• The stock price at the end of the first day of trading – $144.71 per share (hit a high of $165)

• The stock price at the end of 10 days of trading = $157.30 per share (December 18, 2020)

• The stock price at the end of 30 days of trading = $149.77 per share (January 8, 2021)

State the following in your post:

• The total amount of the offering – 51.5 million shares for $3.5 billon – valuing the home rental company at $47 billion.

• The number of shares offered = 5 million shares • The underwriter – Morgan StanleyLinks to an external site.leads as

underwriter, with guidance from Goldman SachsLinks to an external site.. • The fees for the IPO – Investment banks charge underwriting fees as they

take a company public. Underwriting fees are the largest single direct cost associated with an IPO. For Airbnb, the underwriting fees were reportedly at 1.5% of the offering.

Evaluate the success of this IPO from the perspective of the issuer, the underwriter, and investors.

From the perspective of the issuer, the underwriter, and investors – this IPO was absolutely a success. As the largest IPO of 2020, it amounted in $3.5 billion – valuing Airbnb at $47 billion by the end of the year.

Griffith, E. (2020, December 9). Airbnb prices I.P.O. at $68 a share, for a $47 billion valuation. The New York Times. Retrieved from https://www.nytimes.com/2020/12/09/business/airbnb-ipo-price.htmlLinks to an external site.. Hussain, N.Z., & Franklin, J. (2020, December 10). Airbnb valuation surges past $100 billion in biggest U.S. IPO of 2020. Retrieved from https://www.reuters.com/article/airbnb-ipo/airbnb-valuation-surges-past-100- billion-in-biggest-u-s-ipo-of-2020-idUSKBN28K261Links to an external site.. NASDAQ. (2023). Airbnb, Inc. Class A Common Stock (ABNB): ABNB Historical Data. Retrieved from https://www.nasdaq.com/market-activity/stocks/abnb/historicalLinks to an external site..