Holy cow, is the market one big Jenga? Was the DoorDash (DASH) initial public offering the piece that took the whole edifice down when the company came public Wednesday morning at almost double the price we thought it represented any value?
Sure seems like it.
Stocks were doing well, until the indication of where this stock, which was priced at $102, kept climbing and climbing and climbing until it finally found sellers at $182.
I am all for DoorDash. I like the CEO Tony Xu. We used his delivery service at our restaurants and it was admirable. We are one of almost 400,000 merchants that rely on DoorDash for those incremental delivery dollars and have benefited from a platform that informs a bunch of our decisions.
But this is a rapidly growing -- and money-losing company -- worth $60 billion, where it opened when we thought it was a stretch at $30 billion, and we like the company. We put a limit on the stock at 7-times sales, a hefty relative multiple, given the competition and given the losses. But the buyers paid 13-times sales, which, in retrospect, seems like bad luck.
As the indications climbed upward, no doubt fueled by over-exuberant buyers using market, not limit orders, the image of the Jenga tower kept dancing in my head. After a remarkable, unbelievable run, a piece had been pulled that sent the whole thing tumbling.
It gets worse, Thursday Airbnb comes public, and we have to hope that the Jenga tower doesn't miraculously get rebuilt but at a lower level, because it could happen again, for certain.
What's going on here? Has the younger cohort, so enamored of so many stocks, finally gotten too exuberant? After they found out they bought the stock at the opening, did they have to sell something, anything to pay for it?
Sure seemed that way.
And I have to believe if no one learned the lesson not to use market orders, we might see the same thing Thursday, producing the first two real ugly days in a row, with a third, the Robinhood IPO waiting in the wings.
Three Jenga towers and then three collapses? Can the market handle that?
Let's pull thread, double click and get all laser focused on this one.
First, I don't think this is going to lead to the end of the bull market. I think it is true that investors using market orders took the stock of DoorDash far higher than they thought they would pay. With a market order, who knows what price you will get, which is the inherent flaw in the process and why I always say to use limit orders and decide where it's worth taking a pass.
Of course, it is possible that some buyers thought that this could be like Snowflake (SNOW) , a stock that opens at 100-times sales, then flops and chops and then rallies 50% like a moonshot.
Maybe it could do the same. Maybe, if you use market orders to buy Airbnb, because you have learned nothing from me for a second time, it will work and it will go higher, taking the stock of DoorDash with it. Maybe the horses and kings men will put the Jenga tower back together again.
That is not, however, how history says things turn out.
How come this one came down and Snowflake didn't? Snowflake is the idol of a powerful edifice of both institutional and individual money. It is one of the few companies that has much more business than it can handle, because it saves clients fortunes and allows them to hire less experienced people, less expensive people, and train them to use it. That's instead of people with computer science degrees from Stanford who cost a fortune.
So now, some more double-clicking. I have to presume that, judging from the decline in the rest of the market, especially the Nasdaq, that the buyers weren't as well capitalized as many thought. Or to put it another way, they didn't have enough money to take delivery of their DoorDash without selling something else. At the same time, the syndicate desks that doled out the DoorDash no doubt told those institutions that bought on the deal that since it was up about 80%, they were free to dump it and take a profit.
Why hold it for 50 points when you are given 80 points the first morning of trading?
That's a big deal, because the desks usually frown on doing something like that. But this one was too absurd not to. So then you got a second wave of selling when the institutions that wanted in quickly rang the register, because they figured coming in on Wednesday they would be buying stocks at $102 and then holding it until it gets to $150 or so. Instead it collapses like Jenga, because it's reached the price they thought they could get for DoorDash by holding it for a couple of years down the road. Why hold it for 50 points when you are given 80 points the first morning of trading?
For a very long time, we have not had a big-cap stock flop at its opening; you have to go back to the spring of 2019, when we got the one-two punch of Lyft (LYFT) and Uber (UBER) . The bad news: It took forever forever for Uber to get above where it opened and Lyft isn't even near it.
The good news: It didn't really impact the rest of the market. I don't think this time it will, either, although I think there will be lots of top-calling if Airbnb comes too high and there's more motivated selling of the same ilk.
I think that what happened is actually good for the market. Lots of the speculative stocks that have defied gravity got their comeuppance, and it could be possible that Thursday will be a reprise. We need to calm things down, so that the money doesn't seem so easy that people start borrowing money like crazy to buy stocks, because you can't lose. Or, at least you think you can't lose. I am all for speculation, but if you do nothing but speculate, then you are going to end up pancaked like you will be if Airbnb or Robinhood flop.
One thing I have learned: There will be very few people who come on and say that this is a buying opportunity. Instead, you are going to hear that the whole thing was the figment of idle rich imagination and now we are reverting to our old earnings per share, price per share, price target, buy-sell-hold dictatorship of the broker-trader.
Nothing could be further from the truth. It's just that the younger investors don't know when to fold. They don't know that there is a price they can lose money. They don't know that market orders are the devil's playground.
But after this new nightmare of the over-caffeinated IPOs, we will revert to a sturdier Jenga, based on the reopening of the America and the word and the end of the helter-skelter new supply.
