DraftKings, Airbnb, and the Future of IPOs

Airbnb insiders are playing disruptor to change the old IPO lock-up rules

Nov 27, 2020 at 11:02 AM
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A little over a month ago, we unpacked the technical tenacity of online sports betting company DraftKings Inc (NASDAQ:DKNG), a key cog in the gambling machine. Despite the assessments of sports gambling legislation, options activity, and possible headwinds, only the surface was scratched. It's time for a deeper dive into DKNG, its history, and an important trend among growth stocks in 2020.

As V-shaped recoveries go, DraftKings just offered up the pinnacle. The last time DKNG was mentioned in this space, the stock was trading $44.58, 30% off its just-established Oct. 2 all-time high of $64.19. The shares kept careening lower from there, finally settling just below $35 on Oct. 30. Yet November has been an entirely different story; DKNG bounced off its 160-day moving average promptly on Nov. 1 and has so far racked up a 38.2% month-to-date lead. This was fueled by a post-earnings pop of 3.9% on Nov. 13, after a quarterly report that saw earnings and revenue top expectations.

As DKNG was digging out of that October hole, some consolidation occurred at the 300% year-to-date level. Per the chart below, this has been a congestion area for the equity in the past, most notably in June. Of course, after that, DKNG topped out at the 500% year-to-date level just four months later. With a $16 billion market cap, is a similar bounce in store to kick off 2021?


There's more to DraftKing's impact beyond the sports betting landscape. DraftKings became a public company in April 2020, the product of a $3.3 billion merger with Diamond Eagle Acquisition Corp. This is notable because Diamond Eagle Acquisition is a Special Purpose Acquisition Company (SPAC), often referred to as a "blank check company." In other words, capital is raised strictly for the purpose of acquiring an existing company. It's a way to circumvent the traditional initial public offering (IPO) process. SPAC popularity has exploded in 2020 on the backs of success stories such as DKNG and Virgin Galactic Holdings (SPCE),so much so that angel investor Bill Ackman got in on the action. Per StockNews.com, as of July 9th, 2020, there were 39 SPAC IPOs that raised gross proceeds of $12.3 billion, nearly eclipsing all SPAC gross proceeds raised in the full year 2019.

As if there weren't enough storylines to track in 2020, Wall Street has squeezed one more into the calendar. December will bring the initial public offering of the vaunted Airbnb, the online marketplace company. Investor excitement is rampant; New York University marketing professor Scott Galloway told Yahoo! Finance he believes "it will be one of the most successful IPOs of 2020." That's not necessarily hyperbole either; Airbnb has the potential to completely alter the real estate, travel, and retail industry.

What does this have to do with DraftKings? The same way DKNG went the SPAC route, Airbnb insiders are playing disruptor to change the old IPO lock-up rules. Airbnb's IPO prospectus revealed that its allowing employees to sell up to 15% of their shares within the first week of trading in December. And they’ll be able to sell even more shares if Airbnb’s stock price trades at a certain level after the company’s first earnings report early next year.

Of course, this doesn't mean Airbnb is bound to follow the same path on the charts as DraftKings. But the connective tissue between both DKNG and Airbnb is the shared 'disruptor' tag that's become such a buzzword lately. Both companies are at the pinnacle of forward thinking, trying to imagine what the world will be like in five years. If the trend continues, it could also impact the way stocks enter the public sphere.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, November 22.


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