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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

Jan 15, 2021 - Energy & Environment

GM finds love on Wall Street for a change

GM EV600 electric delivery truck. Photo: GM

General Motors is finding love on Wall Street, something it hasn't experienced in a very, very long time.

What's happening: Investors are beginning to give credence to the Detroit automaker's electric vehicle strategy — or they're looking for a cheaper way to participate in the Tesla-inspired run-up in electric vehicle stocks.

Updated 30 mins ago - Politics & Policy

Coronavirus dashboard

Illustration: Annelise Capossela/Axios

  1. Health: CDC director defends agency's response to pandemic — CDC warns highly transmissible coronavirus variant could become dominant in U.S. in March.
  2. Politics: Biden readies massive shifts in policy for his first days in office.
  3. Vaccine: Fauci: 100 million doses in 100 days is "absolutely" doable.
  4. Economy: Unemployment filings explode again.
  5. Tech: Kids' screen time sees a big increase.
  6. World: WHO team arrives in China to investigate pandemic origins.
Dave Lawler, author of World
1 hour ago - World

Alexey Navalny detained after landing back in Moscow

Navalny during a march last February. Photo: Kirill Kudryavtsev/AFP via Getty

Russian opposition leader Alexey Navalny returned to Moscow on Sunday, five months after being poisoned with the nerve agent Novichok and despite being warned that he faced arrest upon his return.

The latest: Navalny was stopped at a customs checkpoint and led away alone by officers. He appeared to hug his wife goodbye, and his spokesman reports that his lawyer was not allowed to accompany him.