The IPO market isn't what it used to be. In this week's episode of Industry Focus: Tech, Fool analysts Dylan Lewis and Joey Solitro look back on one of the most exciting -- for better and worse -- IPO markets of the decade. Some talking points:

  • Why the market was so hungry for IPOs in 2019.
  • A few IPOs to watch for in 2020.
  • Some 2019 IPOs that still look pretty good.
  • How WeWork burst the IPO bubble, and what it means for the market.
  • Advice for investing in IPOs in general.
  • The case for and against Airbnb as a product.
  • One particularly attractive and low-garbage social media company.

Plus, Dylan reads some listener mail.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Dec. 20, 2019.

Dylan Lewis: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. It's our last Tech episode of 2019, so we're going to check in on some of the year's IPOs. I'm your host, Dylan Lewis, and I've got Motley Fool analysts Joey Solitro with me in the studio. Joey, what's going on, man?

Joey Solitro: Good to be back.

Lewis: Yeah. This is the year in review, in a sense. We're going to be looking back at some of the IPOs in 2019. As some of our listeners know, you are Mr. IPO. You are the one who is following these companies as they go public and very often hopping into some private rounds as well. So, I wanted to have you on for the show.

Before we talk about the stocks of 2019, why don't we talk a little bit about the year of 2019? What was 2019 the year of, for you, Joey?

Solitro: 2019 for me was the year of finally getting my in-house position here at The Motley Fool. It's been exciting. It's been a huge change, moving from Florida to Virginia. But getting used to this weather. It's been freezing outside, got some snow here and there. It's definitely been the year of the move to Virginia and the start at HQ.

Lewis: Selfishly, I'm very happy that it happened. [laughs] We didn't know each other before you came in-house, but you were writing for us for a while and working on some of our international stuff as well. Now you are an analyst for some of our international operations and someone that I love having on the podcast.

Solitro: Thank you! Slowly becoming IPO Joe around here.

Lewis: IPO Joe. If it rhymes, it has to be true. Our producer Austin Morgan, what was 2019 the year of, for you?

Austin Morgan: 2019 for me was the year of recovery. I had two pretty solid surgeries this year. The shoulder surgery took a solid eight months to get somewhat back to normal.

Lewis: And you're already thinking about baseball for 2020.

Morgan: Oh, yeah. I've been thinking about baseball for 2020 since 2018 when I hurt myself.

Lewis: [laughs] So, recovery, and a little bit of victory there, too. You got the Nats win.

Morgan: Got the Nats win, yep. But I had nose surgery and shoulder surgery in 2019.

Solitro: A year to forget.

Lewis: So, the resolution for 2020 is to stay healthy?

Morgan: That would be great. I'd really, really appreciate staying healthy.

Lewis: You can't mess around with that stuff, the older you get. For me, 2019, I think the year of traveling a little bit. Was in the Philippines with my girlfriend visiting her family. Spent some time out in Bozeman, Montana, with some friends. Got to do some of that stuff. And, I think, settling into the city with my girlfriend, kind of getting used to being in the same place. We've been doing distance for a long time. We're finally here and enjoying the same place and enjoying each other's company.

Solitro: She's not sick of you yet. That's a good thing.

Lewis: She's not get sick of me yet. Actually, today is her birthday, so I really hope she's not sick of me.

Solitro: Happy birthday!

Lewis: Yeah, happy birthday, Jess!

So, all right, for the investing public, I think 2019 might have been the year of bunk IPOs. This was a pretty big roster of companies that were coming out and going public in 2019. Some big, big names. Uber (NYSE:UBER), Lyft (NASDAQ:LYFT), Slack (NYSE:WORK), companies that people have been following for a very long time. By and large, these companies haven't done particularly well.

Solitro: Yeah. You used to see companies come public when they were four, five, six years old. But, because of private equity, venture capital, it's so easy to obtain this financing, so companies are waiting 12, 13, 14 years. So, yeah, now that they've finally come out, it's like the investing public knows, these have already had huge runs, the revenue is significantly higher, the market caps are way up there, that they're almost thinking the growth rates have slowed so much, is there any upside left? I think that's what the investing public is pretty much saying.

Lewis: Yeah. These companies have gotten a lot of leash thanks to cheap debt and a lot of willing venture capital firms. They've been able to achieve so much of the growth and the total addressable market that they're trying to seize as a private company. And the problem that some of them run into, or at least the problem as I see it, is public investors are seeing these names for years in many cases, and thinking, "Wow, Uber is taking over! Surely this is a no-brainer stock to own!" The performance hasn't necessarily backed that up. Though, it hasn't been a totally bad year for IPOs.

Just a couple numbers to paint a picture of what we're looking at in terms of IPO activity for 2019. I'm looking at some data from Renaissance Capital. They're one of my go-tos when it comes to IPO data. They look at U.S. IPOs of $50 million or more, and they have 159 priced deals in 2019, down from about 192 in 2018. Proceeds of about $46 billion, basically flat with where things were in 2018. That $46 billion figure is boosted a little bit by the IPO of Uber. This was, I think, a $7 billion IPO in terms of proceeds. So, a huge chunk of that, about a sixth of that, is just one issuance.

Solitro: Yeah. A lot of these, like you said, are coming from a couple IPOs. Really made a huge amount of those total proceeds. And then, to see the total number down from 2018, 192 to 159 -- this year, I've seen so many postponements or complete withdrawals that I hadn't seen in previous years. It's almost like that IPO bubble burst, and now people are actually looking at these companies -- I know we'll talk about the main reason for that later. But, yeah, I think it's the total number of deals coming down significantly. Renaissance Capital, I read a lot of their information, they expect almost a rebound and more IPOs in 2020, but I definitely think the landscape has changed significantly.

Lewis: Yeah, and the companies that are looking to go public, they are generally looking for favorable market conditions. They want people to generally be bullish on the outlook of the economy and the stock market so that they can raise capital at a fair, or maybe even a premium, valuation, and then have some stability as they have their shares out there, specifically for the first six months, because during that period, you have all these insiders and employees that are locked up and are generally unable to sell their shares. In a perfect world, if you're going public, you don't want to make your shares available and then see them crater by 50%. You want some stability and you want to see people excited to buy the stock.

Now, there are some big reasons why there's been a little bit of a deflating effect going on in the IPO market. I think some of that is, we are seeing some of these pretty big issuances not do particularly well. Uber priced at $45. It's been down in the low $30s, all year. Lyft priced at $72. Down in the high $40s. Slack priced at $26, now down in the low $20s. So, a lot of the blockbuster names have not performed particularly well.

But I think the real watershed moment for IPOs is WeWork. I think people are going to look back at 2019 and say this was a major turning point in how we looked at so many of these private companies.

Solitro: I definitely do agree that WeWork was the company that kind of burst the IPO bubble. That's the one that everybody started looking at share classes and governance and really boiling down into, what is this company doing? Is it something we want to be a part of? I think that's the turning point where I really started to see a lot of companies withdraw IPOs. And even the ones that had successful introductions, or had been trading in the market, you saw those take a turn for the worst, where investors were either taking gains or they just weren't demanding these types of companies to be in the market.

Lewis: Yeah, I think for the last 10 years or so, we've seen certainly the public markets with the big tech companies take over a little bit. And with that, we've seen a lot more interest in newly public companies, because so many people look at these unicorns and say, "Well, this could be another Facebook, this could be another Google or another Amazon," and they're expecting some really big returns. So, there's been a lot more attention on these IPOs and these new companies coming out. I think what we saw with WeWork is, the attention, and then also the scrutiny. And so often, it's fanfare, but it isn't really due diligence. And usually, when we're talking about the numbers from an IPO, and we're looking at the prospectus, that's something that wonks kind of get into. We like to spend our time digging through an S-1; the average person really doesn't. But I've noticed over the last year, we've seen much more reporting, we've seen much more of that kind of stuff, working its way into Twitter in a mainstream way, not just fintwit, and a lot more people getting involved. And so many of the details that were so damning about WeWork were from that prospectus and really brought the IPO process, I think, to the consciousness of the average person.

Solitro: And on top of that, you have these companies where years ago, they were pricing IPOs at 5, 6, 7 times sales, and that was expensive. Now you have companies pricing at 15, 16, 17, upwards of 30 times sales. It's almost like those gains were, had they priced at $10 and ran to $30, that's where the investors could really see some gains. But now, they're pricing so high, and then they still open and they're up 50%, 60%, 70%. Like, how much upside is there really over the next couple years? I mean, it's more of a guessing game. It's almost like the MOM-entum market became the FOMO market, the fear of missing out. And I'm left here like, what do I do?

It's been a tough time. But it's been one heck of a year in the stock market. You don't so much need these companies or need to reach for them so quickly. You can be much more patient with them.

Lewis: Yeah, and it's telling that so many of these companies have struggled in a year when the S&P is up 25%. Pretty darn impressive returns.

Before we totally move off of the WeWork discussion, I think it's worth emphasizing, I feel for the employees of WeWork and especially the folks that have been let go, the people that have a significant amount of equity tied into that business. But, this is an important moment for investors, I think, because the scrutiny that came from folks like us, people at CNBC, what have you, people in the financial media, just asking questions and really digging into this business, took what would have been a $48 billion IPO and turned it into a valuation of about $8 billion. And the important thing to remember there is, Wall Street, the investment banks that were underwriting that IPO, were happy to sell WeWork at $48 billion. They had no qualms about that. It wasn't until people started asking questions, started saying, "Does it really make sense that he sold The We Company for $6 million?" all those types of things, for the illusion of shatter a bit.

Solitro: I have a lot of issues with how investment banks operate. You spotlighted one right there. Another one being, say, a big investment bank helps lead an IPO, and it comes out. Say it's at $26 a share. It might jump to $32. And then you have that same investment bank come out after the quiet period and put a price target of $48. It's like, why would you let the company sell it there if you really think it's worth that? It's almost like, whose pockets are being lined here? So many question marks in that entire thing.

Taking it back to WeWork, I have a friend of mine that works there. I think he was one of the first 300 employees. I have a good feeling -- he's never told me his actual holdings, but I think he was very close to being a millionaire in that WeWork IPO, and now it's to the point where he's questioning if he's going to have a job next year. The tone just went from total euphoria to "holy crap, am I going to have a job tomorrow?"

Lewis: Yeah, and I'm sure he's not the only one. I'm sure there are a lot of people that are in that position or have already been let go from WeWork. We obviously sympathize with them. I think this is something, though, that five, 10, 15 years from now, is going to be studied pretty regularly. I think this is going to be a case study type company just because the effects were so widely felt.

Solitro: Yeah, and we've already got some documentaries in the works. I actually read that a professor was already using it at one of the big business schools, like, "Hey, what happened here, and just how out of hand did it really get?" Where it's bad for the investors and the employees, I definitely think it was good for the market, because it was almost like that reset. We needed something to happen for people to open their eyes and see, not every IPO can jump 80% on day one and then return 1,000% over the next 10 years. We need to think about this. Rather than just buying based on the name, we need to look at the financials and actually do some vetting to realize, is this really something you should have your money in? Or is this something that could be pitched at $48 billion but is going to end up being an $8 billion, or might go belly up within the next five years?

Lewis: To your point earlier, the market has done so well over the past 10 years. There's already a lot of stuff that's priced at a premium. Valuations are near all-time highs, or near relative highs, depending on how you're looking at it. You slap on top of that the fact that over the last decade, we've realized the as-a-service model is very strong. If you can make that something that works for you, specifically in the software space, you're able to command a higher premium, because when you finally hit profitability, your margins are just off the charts. So, you take an already rich environment, and then you take a business model that a lot of people are aspiring to be, whether they are or not is up for debate -- that's going to amplify all of the rich valuations that you see out there.

Solitro: Yeah. Like you said, everybody's becoming that as-a-service business model. There are such high quality companies already in the market and coming public that it's almost making it that not every company coming needs to be bought. It's like, they're so high quality, there's so much to choose from, that you don't need to reach, that you don't need to overpay for something. I mean, I don't really care about valuation because I'm looking so far out, but if I've got companies of a similar size that I think could be huge in 10 years, I don't have to buy both. You have such a great number of great companies out there that it's a great time to be invested, that's for sure.

Lewis: It is. That's why we love doing what we do, Joey.

Solitro: Absolutely.

Lewis: Now, 2019 has not been a bad year across the board. There are actually some IPOs that have done quite well, some name-brand IPOs that have done quite well. You look at Zoom and Beyond Meat, just as an example. Both of those stocks trading well above where they initially priced. The caveat there is that most people did not get those shares where they priced. Most people were not buying Beyond Meat at $25. They were probably buying it somewhere in the $50s or $60s. So, the gains that the average person experienced, probably not quite as good as the gains based on their listing prices.

Solitro: That is definitely one of the issues I've seen. Zoom is a great example. I think they priced their IPO at $36, and they were well over $100 at one point. They can chalk it up as a great year for them, but there's a lot of investors that could be down 30%, 40% right now.

Same with another IPO that I'm actually very excited about, CrowdStrike. It was over $100 at one point. I bought it a couple weeks back under $50. Where I'm up 2% or 3% right now, there's some people that are down 50%.

It's always about, where these names are coming hot out of the gate, and then they get some earnings reports out, and really see is the valuation sustainable right now. And you'll get these wide swings, because, yes, as fast as something can go up, it can come down. You have to know, if I'm going to buy CrowdStrike at $100, what would I do if it drops to $50? Is that just going to become "Let's harvest the loss for taxes and come back to it?" Or would you buy more? So I always say, if I buy a name, it's because I want to buy more at a lower level.

SmileDirect being another one. I bought that when it came out of the gate from its IPO. It ended up sinking. I knew I'd create it a starter position. We were on a show talking about it. That became one that I had to harvest the loss for taxes, and then I bought it back last week under $8 a share or something like that. I can invest the same amount of capital from my original position, got nearly double the amount of shares. Actually had a good experience actually going to one of their SmileDirectClub locations at a CVS around the corner from my house to actually see the operation firsthand. That's one where we don't need to be chasing them as much as we think because the returns are going to be completely different for each investor.

Lewis: I know that you and I have slightly different philosophies when it comes to IPOs. You generally like to hop in pretty quickly if it's a business that you like and a lot of the metrics are moving in the direction that you expect them to. I am someone who will generally like to sit outside and wait for the lockup to end, and see some those shares flood in, and see a couple quarters of results first. I don't know that one of those approaches is better or worse. I think at core, we're abiding by the same thing, and that's, start small and follow the company. And then, if you continue to like what you see, add to the position. But don't weight too much of your position for any one point in time.

Solitro: Absolutely. Yeah, there's some companies that I just like so much that I want to have, even if it's just 25% of the total position that I want to have over the long term. I just want to have that in my portfolio, more than just to track it. I think I have 18 different watch lists with over 50 companies on it. I'm watching quite a few companies each day that I'm always checking in on. But if there's one that I'm very excited about, it's like, why wait? Let's just add a little bit here, and I'll grow the position over the course of the year. If it's a company I really like and, say, it drops 20%, I could get into tax loss mode. My tax loss selling is completely different. What I'll do is, I'll double a position, wait 30 days, and then sell the first half, and make sure your cost base is set to the highest, so then you harvest the last but maintain your full exposure. The only issue being there is, for 30 days, you have twice the number of shares than you really deep down want to have. So, if something significant happens and it drops big or rises big ... But, I mean, I'm just a bit of a risk junkie as it is, so I don't really care.

Lewis: [laughs] Yeah, I'm generally not one who will over-engineer my tax losses. Towards the end of the year, if I have stuff that I'm sitting on a loss with -- for example, I finally got rid of some Under Armour shares that I was sitting on a loss with. I was like, "You know what? I'll write off some income that I have with that." I don't plan on buying those Under Armour shares back. At this point, I've found something that is a little bit more compelling for my money. But I know there are some folks out there that are taking that approach.

Solitro: Absolutely.

Lewis: All right, so, that is a big look at how things have done in 2019. There are some winners out there, some names that people may not be quite as familiar with. Cortexyme up over 100% from where shares started trading. Turning Point Therapeutics up over 100% from where share started trading. Those are where shares started trading, not where they priced. Now, these are names that people may not be familiar with. I certainly am not. They're both healthcare companies. I remember looking at that Renaissance data and saying, "Wow, the most represented industry for IPOs in 2019 was the healthcare and the biotech space." That's been a very big field for the IPOs this year. I don't really follow that space too closely. And I wouldn't encourage anybody to just hop in because it's been hot.

Solitro: Biotech, pharma, that whole space is just one of those where it's almost like a coin flip. Everybody's trying to cure cancers and these rare diseases. I hope all of them are successful, but it's almost like 90% of them end up failing and just tanking. I've owned Gilead for years, and they cured a huge disease, and that was the worst thing they could have ever done, was cure it, because now it's just a one-and-done treatment and people are cured. That was my breaking point like, "OK, I'm done with this. This company did everything that they wanted to do, and that was the worst thing they could have done."

We actually had another tiny, tiny IPO earlier this week, Monopar Therapeutics. It's too small for me to even have it on my radar, but it's up over 400% since its opening price. That's not like they priced at $8 and opened at $28. This is like, they priced at $8, opened at $8.35, and they're trading at $28 and change right now, and they had a high of $48. It's one of those where, if I understood it more, I could do it. I understand technology, and at least I can get the gist of it, but a lot of these where I'm reading any studies they have going, clinical trials, it's just all complete foreign language to me. So it'd just be a guessing game.

Lewis: Yeah, those are the numbers that get people excited about IPO investing, right? That 400% in a really short period of time. With the biotech space, you're subject to binary outcomes, something that people that invest in other industries may not be as familiar with. The idea there is, either it's going to work or it's not going to work. It's not going to be something like a software company, where they might sell, 200 seats, they might sell 2,000 seats. Either way, they're collecting some revenue. If you don't get a drug approved in the biotech space, you're SOL. You don't really have a lot to work with there. That is a note of caution there.

I think your point there about investing in what you know and you understand ties back to one of my big lessons looking at these 2019 IPOs. I look at Uber, Lyft, and WeWork, really, all three of them, as examples of companies that have products that people seem to really love. People like the ride hailing, they like these workspaces. Clearly, the cult of WeWork is strong because they have a good offering. With a lot of these businesses, though, it's like the underpants gnomes in South Park. There's this question mark with step two. It's not clear how you get to step three and make that profit. I think, with a lot of these companies, we haven't really seen a clear path to profitability. And if you don't understand that part of a business, it can't be investable.

Solitro: In that same tone, where people like to invest in things that they use a lot, I eat something like 10 dozen eggs a week, but I'm not going to invest in an egg company. Invest in what you know, understand, but also something that you could see scale and become very large over time. I think the egg market is very mature. Maybe they get a 2% or 3% uptick, or if some bird flu breaks out and there's not enough eggs and there's a supply and demand issue, they can charge more. The egg industry doesn't interest me. I love having them at breakfast. And I think one of the perks of moving to Virginia is just how cheap egg prices are around here. I guess we're closer to farms to get it. My Lidl around the corner -- I thought they were having a big sale because it was like $1.27 for 18 eggs. I'm loading up the cart like, "What is happening?! They're doing a fire sale! What's happening?!" They're like, "No, that's just egg prices here."

I know that's a weird example, but, yeah, just because you love something -- you might love your WeWork location or something like that, but if they came public, it's almost like people like us that shone a light on things that were going on in the inner workings and prevented that IPO in the end, how I see that $48 billion becoming $8 billion, it's almost like the people that spoke out saved thousands of people that would have bought that IPO and everything from losing a significant value of their investment.

Lewis: One of the names that we haven't talked about yet that did go public in 2019 is Pinterest. It's an interesting company, because they're a social media business and they've been around for quite some time. This is a name that tons of people are familiar with. I don't think they need a huge introduction. It's basically image-based social media, a lot of DIY and project folks are on there looking for inspiration. They managed to stay private for a while and hit the public markets. You would think that it'd be a fairly mature business at this point, but it's still in its early innings.

Solitro: It's a very exciting company and one that I own. What really gets me about them is, it's almost like it's a mature company that's still in start-up mode. Where they've been around for something like 10 years, that they've had this app and website out, they've only been monetizing the U.S. side since 2014. And they've only just started monetizing internationally. They've got 322 million users. That user base is growing over 20%. But, their average revenue per user globally is $0.90. I think it's just over $2.50 in the U.S. and something like $0.13 internationally. When I'm looking at a company like, say, Facebook, the average revenue per user is over $7; or Twitter, over $5; Snap over $2; I'm seeing, these guys are just in the very, very early stages of monetization globally, and their user base is not done growing. You see the user base stalled in Snapchat and Twitter. Facebook, they've got 2.1 billion users, how much could they really add unless they get into China or something like that? So, when you see Pinterest, where they could easily double, triple their user base, they could easily monetize these guys at 5X, 10X what they're already doing. That is just one I'm very excited about it. If I had to pick a single IPO today for 2020, it would be Pinterest.

Lewis: The interesting thing about them is, you see so much about the vitriol and the absolute sewer-ness of Facebook and Twitter, and how they can be dark places on the internet where a lot of misinformation is spread, where there's a lot of hate. They are unique, Pinterest, in that they don't really have any of that quality.

Solitro: The thing about Pinterest is, it is what you make it. If you see something in your feed that offends you, it's because you chose to see it. It's not an algorithm saying, "Hey, we think you'll like this." No, you chose -- I actually was running through my investing team, showing them what Pinterest was. They had never seen it before, so I showed them mine. I was like, "Here's what I did." I put CrossFit workouts, paleo recipes, and while this might not even fit into my high-growth thing, I really like modern architecture, where people turn shipping containers into buildings or houses.

It's just the coolest crap ever. And they're all like, "Yeah, that's not weird at all." So, I was running them through the feed, and they were seeing, it's curated to what you want. And I saw my wife plan our wedding using it, and baby showers, and everything. You create these boards, and you can share specific boards with your friends. It's not like you're battling for how many likes you get on your picture. It's not how many followers you have. And it's not a platform of hate, like a lot of these social media sites came from. I actually sold Twitter a couple months back, and one of the driving forces -- Trevor Bauer, he was at the Cleveland Indians, now he's on the Cincinnati Reds. Now, he can be a controversial guy. You either love him or hate him. But one thing he has been very good at is battling cyber bullying. He had a bad start, as all pitchers do. And he got some pretty nasty messages. He had one of his teammates, I don't know if he made an error in the field or something, but he was getting all these actual racial slurs and very mean messages. So he was just retweeting it out, like, "Hey, this is what we're going through as athletes. We've got to do something to combat this. This isn't right." So, to see that, that was kind of the last straw for me. It's like, these platforms of hate, nothing really good comes out of it. Yeah, they get some good ad dollars. But Pinterest is almost like, it takes that whole social aspect out of it. It's not that dump that we see. It's about, you're coming here because these are your interests, or you're looking to plan something and we're going to help you find the things that you want. And that's something I can really get behind. Plus, the numbers all make sense.

Lewis: Yeah. Mark Zuckerberg famously said, "Move fast and break things." It seems like Pinterest is taking a slightly different approach to social media. So, that is your pick of the 2019 IPOs, heading into 2020?

Solitro: Yes, sir.

Lewis: I think for me, it's probably Slack. I don't love a lot of the big-name companies that went public in 2019. I think there are some very interesting ones with CrowdStrike and with Datadog. I still want to see a little bit more from those companies before I'm hopping onto that train. I think Slack has some very big obstacles, particularly going up against Microsoft Teams. But, the business is there. There's precedent for a company working that way, where they have people paying per head to use something. It's a very scalable business. And everyone that uses it seems to really love it. So I think it's an instance of a great end product and possibly a really good business. That said, I don't own the company right now. It's just what I look out and see as the most interesting business.

Another thing I want to ask you, too, Joe, was, we've talked about 2019 debuts, what's something that has not yet gone public, but likely will in 2020, that's very interesting to you?

Solitro: One of my favorite private companies is named JFrog. I actually have a JFrog shirt at home, and had I known I'd be asked to do this, I would have worn it. Now, I love small software companies. We don't have any information on the size of these guys or what they could be privately. But it's a database of devops. What they do is, they have this suite of products that allows people to automatically release software updates. You think of your phone, all the different software updates that go on behind the scenes, automatically. Or, if we've got Slack or different apps on our computer, that we're having automatically update, where you didn't have to go on there and click settings, go to update, and all that. They're trying to make it -- how they actually put it is, they want software to be as liquid as water, like everything just falls into place, and it all happens so quickly.

I was just perusing around this company. They've hired banks to pursue an IPO, I think in the first quarter of 2020. I was looking at their customers. They've got Facebook, AWS, Workday, Instagram, Cisco, Slack. And it's like the who's who of tech. And then you look at who they're partnered with. Again, it's the who of tech and development and all this.

When I think how everything is working in the software world, and how we need everything to be seamless and update quickly, and not only for features of the app that might be released, but for security purposes -- like on Spotify, Netflix, and Google, you need these security patches, and you need that to update automatically. If there's a glaring issue and you need to have that update now, you don't want users to wait, because they might put off updating something for weeks, and then their data could be exposed, and then it's almost your fault. You want this to happen automatically, and that's what JFrog does. And they have a fantastic name, too.

Lewis: JFrog, yeah. I mean, the name doesn't tell you anything about what they do. [laughs] 

Solitro: That's another thing. I know a lot of people like, ", we know what they do. They help you bill people." I'm thinking, I'd rather have to explain the name. I think that's pretty cool.

Lewis: [laughs] For me looking out at 2020, we've talked about this before on the show, but I think Airbnb is a pretty interesting business. They got a decent amount of press this year, particularly as all of the WeWork stuff was coming to light, because they are one of the big brand-name unicorns that are still out there. They also have some challenges ahead of them, but I look and I think they're growing revenue at over 30%. It's a gig economy business that I don't think is going to be subject to a lot of the criticism that Lyft and Uber are currently subject to. They solve for some pretty interesting resource allocation issues with cities. There are people that are abusing Airbnb and taking what would be normal housing and deciding to just rent it out solely on Airbnb, and limiting the use of that actual building, which is unfortunate. But, I look at this and I say, this is truly a platform business. They're connecting people that want to travel or want to stay somewhere downtown in a city where there aren't a lot of hotels. I've certainly been in that exact situation, and I'm pretty loyal user of both Airbnb and VRBO. So, I look at that company, I say there's some stuff for them to figure out. They're losing a lot of money. They're spending a lot on sales and marketing in order to, I think, get their name out there more and build more buzz before they go public. Once we see the actual filings, we'll have a better sense of what that business looks like. But, that's certainly one to watch for me.

Solitro: Airbnb is definitely an exciting one. I love those almost two-sided marketplaces. They're just connecting people with something that needs something. So, Etsy connects buyers with sellers. Airbnb, it's like, "You have a place. We're going to connect you with someone that wants to stay in it." That's a great business. I know the market cap's way up there. I almost get a feeling like it's almost like they're waiting too long to come public. I hope the growth is still impressive, or the margins are great enough that we see that clear path to profitability.

Another thing I worry about is, if they're going direct listing, they don't really have that fallback of those big investment banks going into it. I mean, I love the idea of a direct listing, that you're not paying these investment banks to basically get you to the market and underprice you so you see that big pop, but after seeing the price action in Slack, I definitely want to do more work to see if there's a big benefit to these IPOs rather than direct listing, or if there's something they can do to make these direct listings more stable. What did Spotify do that helped their share price perform better than a Slack? And that's still a big question mark for me.

Lewis: And this is pretty new. We haven't seen too many companies go with this approach, particularly big ones where there's a lot of demand for the shares early on. That's going to wreak a little bit of havoc on the share price itself.

Solitro: Yeah. I just hope Airbnb doesn't have some huge issues within. I know they're not going to be like a WeWork, but a big thing with Uber is all these different assaults that have happened within their cars. I know Airbnb had an issue where people were leaving cameras in their house, and there's privacy concerns. I've never actually used an Airbnb, which may be shocking to a lot. I guess I'd have to use it. I mean, I have the app. I have my account all that. And I was actually looking, when I first moved up here, I stayed at a hotel for two weeks before I closed on my house, and I was looking at Airbnbs. But I still had that, "I don't know if I want to share a room in this dude's house that I don't know."

Lewis: Yeah.

Solitro: I think once I do it, it's like, it's going to be a no-brainer, just like getting in someone's car that you don't know, and he's going to take you somewhere. It's definitely an exciting company. I look forward to seeing all the numbers.

Lewis: Just two weeks ago, Jess and I got a cabin out, like, southwest of us in Virginia, over near Lake Shenandoah. There's this whole brewery trail and winery trail right along there. So, you can go out and go hiking, and then hop to a brewery, hope to a winery.

Solitro: That sounds very dangerous, if you're drunk going back.

Lewis: [laughs] Well, you have one drink at a brewery, maybe do a tasting and then bring something home with you if you enjoy it.

Solitro: I don't know if you and Jess go hard or what's happening.

Lewis: No, we are imbibing responsibly. But we stayed at this little Airbnb. It's actually a converted shed garage type thing on this person's property. Fully insulated, has its own running water, kitchen, all this kind of stuff. And it was this really wonderful retreat. It's kind of an area where you couldn't have possibly gotten a hotel there. You had to stay with someone who had property or had an extra room or something like that. So, we had our own little private space. We were within driving distance of all these places we wanted to go, all these trails we wanted to go on, and we had a nice little weekend away from the city.

That's my closing experience on Airbnb for you, Joey.

Solitro: Maybe that's how I can stay in some shipping containers and get my fix that way. I mean, my family and my kids won't go with me, but hey, maybe I'll just have my shipping container adventure that way.

Lewis: There's a cottage industry of people that have made either tiny homes or shipping containers or things like that on their property for Airbnb purposes.

Solitro: I have a shed in my backyard I keep trying to get my friends or someone to turn into a tiny home. I love that show. It's like Tiny Home Universe, Tiny Home World or something. I don't know what it is. But I thought, just like my shipping container, I'd like these tiny homes. Come on, someone turn my shed into a tiny home.

Morgan: You should make it into a pub shed.

Lewis: Pub shed! I love that idea!

Solitro: I don't even know what that is. I'm guessing it's a pub?

Morgan: Basically just cut a hole in it so it opens up into a little bar. Get a little TV in there.

Solitro: I do have a big hill in my backyard. Maybe people will want to hike it, kind of like Dylan and Jess.

Lewis: [laughs] So, you're offering the all-in-one experience at the Solitro household.

Solitro: Maybe this is what I'll do. I'll knock down the shed, put a shipping container, have it be two-level, Tiny Home plus pub -- what was it? Pub shed? Pub shed. Get people to hike, stay in the tiny house, drink. And then I've got a business.

Lewis: There you go. And then people don't have to drive.

Solitro: There it is.

Lewis: Even better. Well, we're officially off the rails. I think we're going to wrap this conversation there.

Listeners, you can be sure that if there is an S-1 for Airbnb at some point in 2020, we'll be talking about it. Joey, thanks for hopping on, man. Thanks for wrapping up 2019 with me!

Solitro: Always a pleasure to be here. Thanks for having me, guys!

Lewis: Yeah. So, just a quick programming note. Listeners, we're going to be coming at you next week with a roundtable end-of-year discussion from all the Industry Focus hosts. Stay tuned for that.

And, earlier this month, I mentioned that the number one thing on our holiday wish lists here at Industry Focus is ratings and reviews in iTunes. I did say that I would give shout-outs to anyone that gave us a five-star review on the show. I've got a few of those that have already come in, but I'll continue to do this well into early January. So feel free. Just hope over. It takes like five seconds.

marketsdontloveme wrote in, "Love the podcast. Very insightful." Keeping it short. Absolutely love it. That's all you need to give us. I appreciate that love. I hope that the markets love you in 2020.

Joey, you look like you have something to say? [laughs]

Solitro: I want to add a challenge to this. I want everybody to write their comments in haiku.

Lewis: In haiku? Bonus points to anyone that does it in haiku.

Solitro: I just think that'd be impressive.

Lewis: Joey is a little bit more discriminating than I am when it comes to this. I'll just accept the five stars.

Our second one is from Reed. Reed wrote us a review. "Dylan, merry Christmas!" Appreciate that shout out. "As I finished my workout on the treadmill while listening, decided it was time to leave a review. My question for The Motley Fool is, you have so many great resources and articles available and you talk about how important smartphones are and how they've evolved over time. Why doesn't The Motley Fool have an app to make it easier to find and read articles, follow services, etc?" That is a great question, Reed. The reality is, we used to have an app a couple years ago, and we decided to keep it for some time. Ultimately saw that it was not being widely used. So, we decided to sunset it. There are conversations about bringing an app back at some point. Stay tuned for that. One of our tech folks that works over in content has informed me that we have a progressive web app that has been enabled with our online content through browser. So, it's possible for you to set up The Motley Fool as a kind of button or an icon on your iPhone, and then be able to access our content directly that way. If you have any questions about that, just write in,, and we'll make sure that you can get that.

For our other listeners, if you leave us a five-star review, we'll read your comment on-air. Even if you don't want to write a review, just click the button and give us five stars. And when you do that, it's easier for us to spread Foolishness with our podcasts, which we love to do.

Solitro: My question for Reed would be, was his treadmill a Peloton treadmill? I'd like to know.

Lewis: That's a great point, Joey. We also love getting the boots-on-the-ground reviews and discussions of products. I had someone write into the show recently espousing the virtues of camelcamelcamel, after Dan Kline and I were talking about online shopping and how to save money during the holiday season. This listener made the point that camelcamelcamel is an online service that tracks Amazon prices over time and gives you a heads up when something that you are watching dips. So, yeah, there you go. The Amazon price that is listed is not always the same. Shout out to Christian for hooking us up with that information.

If you have cool stuff on any of the markets that we're talking about, feel free to write in, Or, you can tweet us @MFIndustryFocus. We love hearing from you guys,. Until 2020, I hope you guys have a happy holiday. We'll certainly be taking a nice little break.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for all his work behind the glass today. For Joey Solitro, I'm Dylan Lewis, thanks for listening and Fool on!