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A dirty secret of initial public offerings is that even the coolest ones may make only a handful of people rich — and it may not be regular people, employees or even most investors who get a windfall.
DoorDash and Airbnb are expected to make a big splash selling their stock for the first time to the public, and at higher stock prices than anticipated even a few weeks ago.
But buying stock in relatively young and unproven companies — which usually describes technology companies selling their stock to the public for the first time — is often a coin-toss bet.
Even the professional investors who buy stock in hot companies before they go public don’t always get rich, unless they throw their money around early in a company’s life and get lucky. Companies you’ve probably heard of, like Uber, Lyft, Snapchat and Slack, were at best meh I.P.O. investments.
Look at Airbnb. Among the investors who got a special chance to buy Airbnb stock about four years ago, each $10,000 of stock they bought will be worth about $11,500 if Airbnb starts selling its shares to the public for $60 each. Nice!
But if your cousin had invested $10,000 about four years ago in a simple fund that mirrored the ups and downs of the S&P 500 stock index, he would now have $15,600. Even nicer.
The pandemic hurt business for Uber and Lyft, but their stocks were losers before then. Uber’s stock price has bounced back and is now up 30 percent since the spring. Still anyone who bought Uber shares in its 2019 I.P.O. — and even the professional investors who bought its stock in the four years before that — would have made far more money buying an index fund. Uber employees who were hired before the I.P.O. and were paid partly in stock would have been better off getting paid in an index fund, too.
People who bought Snapchat’s stock in its 2017 initial public offering had to wait more than three years to not lose money. Slack recently agreed to sell itself at a price that wasn’t a significant gain from the price of its first stock sale to the public last year. Once again, your cousin would have done better.
These are cherry-picked examples. There are companies whose stock prices have soared since their I.P.O.s and made people rich: Zoom Video is a prominent example in technology. And the people who have already bet on the restaurant-delivery app DoorDash stand to make a mint when the company goes public this week.
That’s the point. It’s hard to predict the young companies that will win, and the definition of victory is often in the eye of the beholder.
Airbnb will be a confetti-and-champagne moment for the prominent start-up investment firm Sequoia, which bet on the company early. And it’s certainly faring better than people expected when travel froze early this year. Even if Airbnb isn’t a killer stock this week, it could be in a year or 20 years. Investors could be rolling in it if they hold the stock, and it goes up. (Or they could be even bigger losers if they hold the stock and it goes down.) No one can confidently predict the outcome.
Take that lesson to heart if you see people screaming on Robinhood about their splurge on a hot I.P.O. Cool companies don’t always make good investments. And when they do, it’s not necessarily good for everyone.
(A version of this newsletter was published in The New York Times’s live business briefing.)
Business & Economy
No, really. What if nearly everyone hates your business?
I’ve written here before about the crummy economics of food-delivery services such as DoorDash and Uber Eats for restaurants, delivery couriers and the companies themselves, which tend to lose gobs of money.
Lots of people love the convenience of having a buffet of restaurant ordering options at the tap of an app — (for a price). But I want to ask again: If one set of people loves your business but many others hate it, will it survive?
This is a renewed question because of recent news reports — from the public radio station KQED in the Bay Area and the nonprofit news organization The City in New York — that some couriers who deliver meals for app companies are collaborating to push for more influence in their pay and working conditions, or to form alternatives that make them less reliant on the whims of the companies.
My colleague Brian X. Chen and others have also written about the budding industry of mostly small food-ordering apps that promise to be friendlier to restaurants by charging them smaller commissions than Uber Eats and its peers typically do, or giving them more autonomy over when orders come in.
The gripes with services like DoorDash and Uber Eats aren’t entirely unique to food-delivery app companies, of course. In most industries, companies’ workers and business partners tend to argue for better terms, and that’s particularly true for companies like food-delivery apps that connect buyers and sellers. And in addition to diners, food-delivery services have been a lifeline for some restaurants and couriers particularly as the pandemic has closed or limited many indoor-dining options.
But I keep thinking about how many unhappy participants there seem to be in the food-delivery app system. Maybe this is growing pains for this kind of app, which is still relatively novel, and maybe this reflects more on difficult economic circumstances for small businesses and low-wage workers.
In either case, all the unhappiness is something that food-delivery apps can’t ignore or wish away.
Before we go …
It’s challenging to get people to use a coronavirus-exposure app: But the apps that notify people about their contacts who have tested positive for the virus can work, my colleague Jennifer Valentino-DeVries wrote, if people trust them and are encouraged to use them. One test at the University of Arizona found the tool sent alerts for up to 12 percent of transmissions, which researchers said helped control the outbreak on campus.
The New Zealand mosque shooter was radicalized on YouTube: Among the findings of a New Zealand government investigation into the 2019 mass killing in Christchurch was that the shooter had been radicalized more on YouTube than he had in the darker corners of the internet, according to my colleague Charlotte Graham-McLay. The Times technology columnist Kevin Roose also has a Twitter thread on the missed opportunities to take YouTube’s dangers seriously.
Everything bad about the internet in one article: My colleague Jack Nicas chronicled the 21-year-old Trump supporter who impersonated the president’s family members and political figures for nearly a year on Twitter before the president and the company took notice. This mischief that spun out of control helped the impersonator attract online followers, blare conspiracy theories and collect money from bogus fund-raisers.
Hugs to this
This TikTok video is one for the nerds: one of the famous instrumental songs from “Star Wars,” beautifully played on the harp.
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