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Illustration: Sarah Grillo/Axios

When is making billions of dollars easier than falling off a log? The answer: When giant Wall Street firms like BlackRock and Fidelity get allocated large chunks of stock in white-hot companies. The following day those shares end up being worth vastly more than the investors paid for them.

Why it matters: More money has been made this way in 2020 than in any prior year, even including the height of the dot-com bubble in 2000.

  • Major companies are postponing their IPOs as a result, worried that they'd effectively be giving billions of dollars away to undeserving investors.
Expand chart
Data: Dealogic; Chart: Danielle Alberti/Axios

By the numbers: According to an analysis by Dealogic for Axios, IPO investors have made more than $50 billion so far this year, just by being allocated stocks and holding on to them for a single day.

  • That's a new annual record, and the year's not over yet.

How it works: Most companies go public in a two-stage process. First they sell stock to investors at a pre-set price. The following day, those investors start trading that stock on the open market, usually at a premium to what they paid initially.

  • Individual investors with accounts at Robinhood or E-Trade have no ability to buy stock at the IPO price. If they want to buy the stock, they have to pay the higher open-market price.

The winners: On Wednesday night, Airbnb sold 51,323,531 shares at $68 each to some of the biggest and most powerful investors in the world. The total amount paid for those shares: $3.5 billion.

  • By the close of trade on Thursday, those shares were worth $7.4 billion, representing an overnight profit of $3.9 billion for institutional investors.
  • Repeat that story across almost 200 other IPOs this year, and windfall profits end up totaling $51 billion. That's a larger profit than is made by any company in America, except for Berkshire Hathaway and Apple.

The losers: What looks like "windfall profits" to investors often looks like "money left on the table" to the companies that actually sold the shares. After all, why should Airbnb sell shares for $68 on Wednesday when it could sell them for $144 on Thursday?

  • Two multibillion-dollar companies — Roblox and Affirm — have already decided to push back their IPOs as a result.
  • While there is much talk of mechanisms that would allow companies to sell shares at the market price, so far that hasn't happened. The biggest opponents of such structures are, unsurprisingly, the large investors who benefit from the current setup.

The bottom line: The stock market isn't a level playing field — certainly not when it comes to IPOs.

Go deeper

Felix Salmon, author of Capital
Jan 29, 2021 - Economy & Business

SEC says it will "closely review" restrictions on Reddit-fueled stocks

Photo: Olivier Douliery/AFP via Getty Images

The Securities and Exchange Commission on Friday warned Robinhood and other brokerages that it will "closely review" actions they took on Thursday that prevented investors from buying stock in GameStop and other popular Reddit-fueled stocks.

Why it matters: The move from Robinhood generated anger across the political spectrum and among small investors who wanted to participate in one of the most exciting stock-market trades of the moment.

Stock market has worst week since October amid Reddit frenzy

Photo: Tiffany Hagler-Geard/Bloomberg via Getty Images

Wall Street had its worst week since October as day traders bid up stocks for GameStop, AMC and others that gained popularity on Reddit.

Details: The S&P 500 fell more than 1.9% on Friday. All of the major averages fell more than 3% this week.

Robinhood has a stacked policy team — and it's going to need it

Photo Illustration: Justin Sullivan/Getty Images

The stock-trading app Robinhood has an arsenal of political power brokers it can deploy on its behalf as it faces congressional inquiries over its role in an internet-fueled market manipulation frenzy.

Why it matters: The populist, discount trading platform is going to need that firepower because its decision to suspend trading of stock in GameStop and a number of other companies on Thursday has sparked criticism and promised inquiries from both sides of the aisle.