On Feb. 11, the Bumble IPO won the usual kudos from the business media for staging a “sizzling market debut” and “bring[ing] home the honey.” But the most extraordinary feature of the dating-based social network, owner of the Bumble and Bandou sites, went unnoticed. It appears that of all the large public offerings in recent memory, the Bumble IPO left more cash on the table than any other, relative to its market cap.
In the weeks before its opening day on the Nasdaq, Bumble’s underwriters, led by Goldman Sachs, sold 50 million shares to asset managers, hedge funds and the like at $43 a share, raising $2.15 billion. The rub is what followed—the phenomenon that makes the usefulness of Wall Street-led public offerings so questionable.
Retail investors and funds that couldn’t get shares in the underwriting piled in, lifting its price to $70.31, or 63.5% by the market close. Hence, Bumble sold shares at $43 that the broad investing world was happy to purchase at over $70. In fact, Bumble shares took another jump on Feb. 12, reaching $75.46 at the close.
Based on that first-day close of $70.31, Bumble could have raised $3.52 billion if it had sold its shares at what proved the full market price. Put simply, Bumble sacrificed $1.37 billion in cash that could have filled its coffers, by collecting $2.15 billion instead of $3.52 billion via what turned out to be an offering that was hugely underpriced.
Huge IPO pops are commonplace––we’ve seen plenty of first-day moonshots from the start of 2020 through the Bumble liftoff. DoorDash surged 85% on its debut in December, and Airbnb leaped 113%. The difference is that those monster moves, though big in dollars, were relatively modest compared to the issuer’s market cap at the close of the first day—because those companies sold a smaller percentage of their total shares outstanding on IPO day. DoorDash’s market cap stood at $61 billion on its send off, so that it left “only” 6.2% of its total valuation on the table, while Airbnb hit $86 billion on its send off, putting the ratio of foregone cash at 4.6%.
For the ten IPOs that sacrificed the largest share of their issuers’ market cap since the start of 2020, the range runs from 3.1% of total valuation (GoodRX) to 14.9% (Array Technologies). Array was an outlier as the only IPO that that hit double digits. Almost all the others fit a narrow range of around 3% to 6%.
But the Bumble IPO is a bell ringer. A main reason is that it sold a gigantic portion of its total shares. Those 50 million shares amount to over one-fourth of the approximately 187 million fully-diluted shares that are outstanding post-offering. No other recent IPO comes close to selling that big a chunk of the equity to raise cash. That Brobdingnagian offering, plus the big but by no-means-unusual pop, resulted in Bumble’s remarkable “left-on-the-table” ratio to its size.
It’s important to note that the dollar amount itself is super-large. The $1.37 billion in foregone cash ranks as the eighth of all-time, edging number nine Twitter, which left behind $1.323 billion. Bumble closed trading on February 11 at a market cap of $7.62 billion. Hence, the dollars it sacrificed amounted to 18% of its market cap. That’s three percentage points higher than Array’s 14.9%, and nearly four times the median for our Big Ten that left the most dollars on the table since the start of 2020.
The outsized shortfall relative to Bumble’s valuation is significant, because if it had gotten full value for those 50 million shares, its treasury would be brimming with over $1.3 billion more in cash. Its registration statement discloses that it’s not yet generating ample cash from its basic business. From January to September 2020, its free cash flow was just below breakeven. So its shareholders would be that much richer if they’d priced their offering higher. The additional bounty would likely swell its market valuation dollar for dollar. Instead of being worth $7.62 billion at 4:00 PM on February 11, Bumble would likely boast a valuation of $9 billion, or a lift of 18%. All other things being equal, its stock at the close on day two, February 12, could be selling at around $90 instead of $75.46.
Wall Street has sold issuers on the idea that traditional IPOs have major advantages. They generate loads of great press, and ensure a loyal base of big money managers, goes the pitch. But is all that really worth forgoing $1.37 billion and taking an 18%-plus haircut on your stock? The more of these huge pops make headlines, the better the case for alternative routes of going public, such as direct listings, Dutch auctions, and SPACs. They have advantages, too: They don’t vaporize billions that could be funding acquisitions, boosting R&D and providing a cushion for tough times.
