IPO Mania Sweeps Over Robinhood Crowd and Stokes a 111% Rally

An interesting thing keeps happening in the American stock market. Lately, when ownership of young companies passes from the institutions who nurtured them into the much broader arms of the investing public, their valuations double.

It happens fast. After its price was set with professional fund managers the night before, food-delivery service DoorDash Inc. surged 86% in its public debut Wednesday. Software firm C3.ai Inc. jumped 120%. Airbnb Inc. more than doubled a day later, the home-rental company seeing its value surpass $100 billion. The 2020 return in an index of IPO stocks? 111%.

While initial offerings are often occasions for appreciation, this year has been different, with first-day rallies almost three times bigger than the average of the last 40 years. While Federal Reserve stimulus may explain some of the frenzy, it’s hard not to also consider who rules public exchanges these days: the Robinhood posse.

“There is no doubt that the emergence of a much larger cohort of retail investors-slash-traders are moving markets,” said Art Hogan, chief market strategist at National Securities Corp. “There seems to be an entire subculture of people that sort of follow the same things, talk to each other on social media and drive enthusiasm for individual issues. And sometimes it makes no fundamental sense to anybody.”

In looking for comparisons to similar market episodes, some Wall Street veterans point to the last time individuals took over from institutions in setting the price for newly public companies: the dot-com bubble of the late 1990s. While plenty of them got rich in that episode, many more were burned by the bursting of that bubble and a bear market that lasted years. It raises the question in many minds: Is a similar phenomenon occurring today? Phrased differently: who’s got the valuation call right, the amateurs or the pros?