Ringing the Bell
Agree with Schiff on this. IPOs reflect a willingness for risk.
WeWork never IPO’d To bad., It was headed for zero. https://t.co/vTXzt62x9t
— Mike “Mish” Shedlock (@MishGEA) September 26, 2019
I disagree with Peter Schiff about many things, but that’s not one of them.
Apologies for the typo on “too”.
Endeavor Pulls Its IPO
The Wall Street Journal reports Endeavor Pulls Its IPO.
Shares of Peloton Interactive Inc. PTON dropped on their first day of trading and Endeavor Group Holdings Inc. scaled back its planned initial public offering, dealing a blow to the market for IPOs.
Shares of Peloton, known for its exercise bikes where users can watch workout videos from home, started trading Thursday at $27 a share, nearly 7% lower than the $29 price set in the company’s IPO. The Nasdaq-listed stock closed down 11.2% Thursday to $25.76 a share.
Peloton is one of a handful of notable IPOs this year to fall on its first day of trading. Shares of Uber Technologies Inc. UBER slumped 7.6% when they made their debut in May, and shares of SmileDirectClub Inc. SDC —which started publicly trading about two weeks ago—fell 28% the day they first listed.
Meanwhile, talent-representation company Endeavor lowered its expected range to between $26 a share and $27 a share and reduced the number of shares it is selling to 15 million. That is below the 19.4 million shares it had planned to sell for between $30 and $32 a share.
WeWork Catastrophe
WeWork was initially slated to raise nearly $50 billion in mid-August. WeWork pulled the IPO then lowered its expectation to $10 billion slated for September 17.
Ultimately, WeWork failed to IPO at all.
The BusinessInsider comments WeWork IPO Fiasco of 2019, Explained in 30 Seconds.
I assure you that report will take more than 30 seconds to read and comprehend. But here are some amusing highlights.
- After the IPO delayed, attention shifted to WeWork cofounder Adam Neumann’s inappropriate antics, like smoking weed on a private jet, serving employees tequila shots after discussing layoffs, and trademarking the term “we” and then forcing WeWork buy it for $5.9 million.
- A former WeWork executive who made $300,000 and is now suing describes strange cultlike culture, including endless flows of alcohol at mandatory sleepover camp for employees and the CEO’s children on his lap during an all-hands meeting.
- Billionaire Oracle cofounder Larry Ellison calls embattled WeWork ‘almost worthless’.
- WeWork is selling the company’s $60 million luxurious private jet that Adam Neumann and his family personalized and used to fly all over the world
Who Is “We”?
Inquiring minds may be wondering “Who is the We in WeWork?“
Who is the we who works in WeWork, anyway? If it’s the billionaires and the kings whose work is carried out by their capital, then they’re hardly getting a comeuppance. But if it’s us relatively normal people—you and me—then we should learn an important existential lesson from The We Company’s rise and, well, ebb: WeWork, dear reader, is really just office space. It’s the place you go for a job.
The We Company’s Form S-1 outlined a labyrinthine ownership scheme that would have given Neumann more than half of the company’s voting power. Multi-class stock has caused problems for Facebook, Google, and other tech firms, but Neumann’s attitude was more brazen. He used his authority as CEO to pay himself $5.9 million for rights to use the new name, a change he had championed (he later returned the money under pressure of scrutiny before the IPO). He poured tequila shots for employees after announcing layoffs. He bought stakes in real estate that WeWork later leased. He declared WeWork “meat-free” by fiat in 2018, but failed to outline what that meant for its hundreds of offices and thousands of tenants.
It’s hard to know what’s worse: a poseur collectivist lining his own pockets, backed by increasingly risky debt, luring legitimate businesses into an office-sourcing model that could collapse completely; or bankers beholden to oligarchs and absolute monarchs doing whatever they must to protect the upside of their massive portfolios, lest heads (maybe literally) roll. I mean, at least Neumann was pouring out tequila.
Business Model
The WeWork model is to rent masses of office space, that presumably independent people like myself would sublease at extravagant enough prices to pay for the exorbitant salaries of WeWork management.
As a side “benefit”, the office space would be “meat free”.
Note that WeWork swelled into a real-estate behemoth. It employs 12,000 people and occupies more than 20 million square feet of office space.
Last year it became Manhattan’s largest private tenant.
Hmmm. Does anyone smell a Manhattan office rent price crash?
Pets.Com IPO
Wikipedia comments: Pets.Com was a dot-com enterprise headquartered in San Francisco that sold pet supplies to retail customers. It began operations in November 1998 and liquidated in November 2000. A high-profile marketing campaign gave it a widely recognized public presence, including an appearance in the 1999 Macy’s Thanksgiving Day Parade and an advertisement in the 2000 Super Bowl. Its popular sock puppet advertising mascot was interviewed by People magazine and appeared on Good Morning America.
During its first fiscal year (February to September 1999) Pets.com earned $619,000 in revenue, and spent $11.8 million on advertising. Pets.com lacked a workable business plan and lost money on nearly every sale because, even before the cost of advertising, it was selling merchandise for approximately one-third the price it paid to obtain the products.
The company announced on November 7, 2000 that they would cease taking orders on November 9, 2000 at 11am PST and laid off 255 of their 320 employees. Pets.com had around 570,000 customers before its shutdown. Pets.com stock had fallen from its IPO price of $11 per share in February 2000 to $0.19 the day of its liquidation announcement.
Pets.Com vs WeWork
Here’s the best way to compare Pet’s.Com to WeWork.
- Both Worthless Failures (except for the founders who siphoned off millions)
- Pets.Com at least got the IPO out the door
Sentiment Changes Rapidly
A company that was allegedly worth $47 billion a month ago is now widely viewed as worthless.
At economic peaks, sentiment changes rapidly.
Addendum – Very “impressive” WeWork Stats
Here’s an impressive stat from the Financial Times
WeWork expanded to more than 500 offices in 111 cities, reporting a loss of $1.6bn on sales of $1.8bn.
Sales = Losses
Very Impressive
It’s a stat destined for greatness.
Mike “Mish” Shedlock
Peleton….. forgot about that one.
OK, so we are going to mount a locked iPad on the handlebar of a stationary bike, charge twice as much for the bike and the ipad — and then milk the idiots (customers?) a second fortune for proprietary content playing on the overpriced / locked iPad!
If I remember correctly, they were in pretty deep with Lance Armstrong and his Livestrong organization too. And they had some branding thing with the Tour De France.
It seems like a good idea, or a least a better idea than a regular stationary bike, but like most home gym equipment it usually ends up gathering dust.
Many Americans have a basement filled with “awesome” exercise products that were well marketed at first but quickly burned out.
Peleton combines an expensive cable TV service (they control the channels and advertising, even if it isn’t a literal coax cable) with an overpriced exercise bike.
How complicated is it for a gym to put a regular TV in front of a generic bike and let patrons choose their own programming?
How complicated is it for said gym to offer a power plug and Wi-Fi so patrons can go on the internet and get whatever pod casts or blogs or youtube or netflix or whatever the patron chooses?
Fancy marketing and a Lance Armstrong endorsement has helped sell Peleton so far — but an IPO depends on whether the product has staying power / future cashflows.
Its too easy for gyms to buy generic bikes, plus offer Wi-Fi and let patrons choose whatever entertainment they want. No matter what a gym picks, it will be AOL or Yahoo a year or two later. Netflix and youtube are the fad of the moment, but something else will replace them soon. And the gym owner would be left still trying to expense bikes and entertainment systems long after each fad passes.
Installing Wi-Fi throughout the gym is cheaper and lets patrons pick (and pay for) whatever fad they want.
Same goes for home gyms, even those that get used / don’t end up collecting dust.
I have wework access through my American Express card. I’ve used their offices in Las Vegas, L.A. Guadalajara and Mexico city for free. Never paid them a dime. Free internet, A/C, coffee and beer at the Mexican weworks. The layout/floorplans are well done. Unlikely this business is “sustainable” but for a few hours of emails and happy hour I will be sad to see them go.
Peloton reminds me of GoPro.
Office sharing actually has always seemed like a reasonable idea to me. There are lots of very small businesses who would have need for an “office” from time to time, but not full time. I wouldn’t be at all surprised if someone eventually has a form of this concept that works financially.
Office “sharing” has been around for 100+ years. My doctor shares an office and receptionist with other doctors not in his practice.
They have, many many companies offer this service with the biggest being Regus…
“A company that was allegedly worth $47 billion a month ago is now widely viewed as worthless.
At economic peaks, sentiment changes rapidly.”
…
Absolutely. Looking forward to the (long) list of companies joining them in the next few years.
History certainly rhyming. Saved a few comics from the late 90’s insanity. One was a hipster sitting at a terminal with a couple of banksters with handfuls of cash standing behind him. Ready to take public his … cat’s blog.
Good Times!
It would be interesting to compare the industry of the Chinese IPOs compared to US IPOs. Might open some eyes.
WeWork has covenant lite loans. Basically loans with no collateral. WeWork is old news. John Mauldin wrote two letters on them over a year ago and said 2019 and 2020 would mark crises in covenant lite bonds.
A little dated but it is happening now:
Global high-yield debt markets seem determined to go beyond the stupidity seen in 2006 and 2007. The collapse in covenants, which function as an early warning sign for lenders, is a flashing red light that lenders are desperate to push money out the door on almost any terms.
In the lead-up to the financial crisis, covenant-lite leveraged loans were less than 30% of total leveraged loans. Borrowers that were given covenant-lite loans typically had B+ or higher ratings, having some level of inbuilt cushion. Today only the worst of the worst borrowers can’t obtain a covenant-lite loan.
Holders of covenant-lite loans should expect a slew of their borrowers to slowly bleed to death, with the lack of covenants having cut off their ability to take early action when the borrower still has some equity value.
Psychopaths, thieves and con-men, running wild on a field of greed.
The problem is never Psychopaths. There will always be plenty of those. Instead, the problem is that we live in an era where others cannot simply route around them. Instead, in this case, you and I have been paying for this. By working, then having the fruits of our labor stolen from us by The Fed and regulators, and handed to these idiots.
The focus has to be on eliminating the ability of anyone, anywhere, for any reason, to take anything from anyone, in order to hand it to anyone else. Then, these clowns can be all the psychopath they want, with no ill effect to anyone not explicitly willing to play with them.
“As a side “benefit”, the office space would be “meat free”.”
“WeWork is selling the company’s $60 million luxurious private jet that Adam Neumann and his family personalized and used to fly all over the world.”
I have to wonder if he was a climate alarmist hypocrite, too.
2banana’s Rule:
Conservatives are more than happy to live under the same laws and taxes they want for everyone else.
Liberals/progressives expect to be exempted from the same laws and taxes they want for everyone else.
“Conservatives are more than happy to live under the same laws and taxes they want for everyone else.”
As long as they get to write, and interpret, the, entirely arbitrary, laws in the first place, of course…..
Proper conservatives, as opposed to the ultimately progressive clowns who comprise 99% of self proclaimed “conservative movement” in the US, do differ, of course. Those proper conservatives, are perfectly happy to live under not just the same arbitrary laws as others as long as they get to arbitrarily write and interpret them to favor themselves. But indeed to live under proper conservative, as in age old, laws. Which, in America boils down to laws written by Moses, Jesus and Jefferson. And interpreted as narrowly and literally as at all possible.
“WeWork expanded to more than 500 offices in 111 cities, reporting a loss of $1.6bn on sales of $1.8bn.”
That was somehow supposed to be worth $50 billion? No wonder the IPO failed.
Employees will soon be lined up at the unemployment office.
Funny story about Pets.com. I bought a “cat door” from them in 1999 — it was great and cheap…then a second door arrived…and a third door arrived…and a forth door arrived. After that, we stopped accepting packages from FedEx. Pets.com was keen to get its door back, although we were supposed to pay the shipping costs — yep that was their business model!
Needless to say, we kept the doors until they would send us a prepaid envelope (they never did). Of course, they were out of business before long.
Eventually sold the other three, unneeded doors!
As for WeWork, I actually looked at their services, sure their office space was “better located” than what I eventually got (Regus) but had half the services — and to my business having young hipsters hanging around was not seen in a positive light (since I am not a young hipster). It was also about 40% more expensive without the one service we really required — a live telephone receptionist.
Peloton has never made a profit. They sell exercise bicycles for $2,200 and charge a $39/mo subscription fee. It gives you the feeling you’re in a high end exercise class. It does have a nice 21″ monitor and easy to use software.
I have a $300 recumbinent cycle and a $179 43″ UHD smart TV that can do the same thing. There are plenty of YouTube videos that are basically the same. Oh, I forgot, In some of their videos they call you out by name. Definitely worth the $39/mo.
I’ll admit their bicycles are probably better than mine, but I can peddle fine and get the same workout. I could likely buy a similar bike without the monitor for under $1k.
The only way those Peloton bikes could ever be worth it would be if you could hook one up to a bitcoin mining machine and pedal it day and night.
I have a $120 Schwinn I bought 12 years ago. I ride it hard for about 10 miles a couple times a week.
The clunkier your bike, the greater the work out
That is one hell of a business model.
I can easily see how thier IPO was worth billions.
Cheap and easy money will always find a place to die.
“They sell exercise bicycles for $2,200 and charge a $39/mo subscription fee.”
I supposed in the Age of Incompetence, being able to do something as natural as riding a regular bicycle; instead of sitting around inside in front of a TV while stewing in your own stale, sweaty air; is just too darned difficult…. For the descendants of people who once rode across an uncharted continent on horseback and stuff…..
I dont see pulled IPOs as a bad thing at all.
There is a natural cycle to this. Investors are super cautious, they only invest in things that stand up to close scrutiny, the investors make a killing. In the next round there are more investors hoping to do the same as the first bunch, they dont look so hard at the business. The business knowing this doesnt try to hard and doesnt have to, it gets IPOd and makes a fair amount of money.
The cycle goes on until investors will buy anything without looking and the markets will offer those investors what is little more than fraud. Then lots of investors get burned and the cycle starts again.
In this case the pulled IPO is investors actually catching on to the rubbish that they are being offered before wasting their money. I very much suspect that capital is going to be apportioned much more carefully now, for the time being at least.
Maybe WeWork can change its business strategy to something like Lyft or Uber where they provide a platform for individuals to list extra space in their houses for rent.
My take: All signs point to a market top for the stock market. Stocks are overvalued and everyone knows it. Events like this Always happen when the stock market peaks. I predict a major market sell off and downturn will happen soon. A bear market is right around the corner.
Seems like a good thing to me, a lot of these IPOs should never happen. Better they never happen than fail later and lose a lot of dinero for people.
Well, if they fail to IPO, they still lose a lot of dinero for people. Just a different set of knuckleheads.
Worth the watch:
link to youtube.com
Very interesting video.
Sit in a chair and access wifi – for only $300/month! I can’t imagine paying those rates unless you’ve got investor money to burn. Which, of course, a lot of people do.
Bourgeois culture, any culture, can only stand if it is rewarded. In prior times bourgeois culture was fundamentally supported by the upper classes, who invested in America, creating vast wealth. They modeled sobriety, hard-work, risk and reward. The working classes modeled the behavior through church and labor unions, standing together for each other and nation.
The wealthy have abandoned America, and the working classes have abandoned religion, unions, and each other. Into that void steps cultural anarchy.
Bourgeois culture requires hard-work, and discipline. It requires accountability, primarily of the wealthy. I tire of articles that lament the loss of culture without holding those accountable who have abandoned their responsibilities.
The next shoe to drop after the wee-fraud is a hole closet full of shoes:
Tesla is a lost cause by itself. And a double lost cause with the SolarFirst albatross.
Uber and Lyft are the same money losing thing. Once they take into account all costs, they are just taxis
Too many shale oil drillers to name them all here.
Most of the marijauna things are going to get toe tags. Pot was legalized to be an added tax on the stupid. If they wanted it to be a private business, they would have left it on the black market where it was
Tesla is a cash burning company that is overvalued beyond belief. Plenty of hedgies have been short Tesla for ages but somehow Musk keeps the thing going. So far anyway.
Nat gas companies are in big trouble. The nat gas business stinks right now. A deflationary economy and solar energy don’t help either.
Don’t worry, Tesla’s solar panels are bursting into flames all over the country.
And you are insane if you believe there is deflation happening. Check your health care, education, property taxes… and a younger friend of mine recently explained the cost of childcare in most US cities (daycare, private schools, sports teams,…)
Anyone still clinging to the deflation story is a moron. Simply isn’t the case.
Just another pet rock.
None of this would be possible without:
Bank bailouts after bank bailouts
ZIRP
QE to infinity
TARP
Operation Twist
Adding more to the deficit than all previous administration combined
Destruction of 100 years of contract law with the GM bailout
Not one banker in jail
Nationalization of the mortgage market
Mel Watt
Etc.
Cheap and easy money always allows those closest to money spigot to become insanely wealthy.
It destroys those farther away. Thus the largest wealth gap in history.
The cheap and easy money always looks to be put into an asset.
Most investments of cheap and easy money would never exist without the cheap and easy money flooding markets.
And cheap and easy money always finds a place to die.
This is a good post and very true, but it’s baffling how you can know this yet continue to believe so fervently in the red/blue game. I’m sure you know the banks like both teams, so what on earth motivates you to be a diehard red team acolyte?
Well, this happened in 1999 too without QE, massive deficits, and all the other financial hanky-panky. I see it as just normal capitalism: the idiot, indulgent off-spring of real industrialists throwing daddy’s money away on stupid investments because they have more money than they can ever imagine what to do with.
The difference is in 1999 is was the dot.com bubble fueled by the cheap and easy money of investors and margin.
Today, the everything bubble is massive in scope and makes the dot.com bubble looks tame. Fueled by cheap and easy government money.
The common denominators are cheap and easy money.
Debt was growing like gangbusters in the late 90s as well. And the debt increase is the underlying hanky panky. The nly one which matters. QE is just one particular technicaility allowing debt to keep increasing.
When Nixon put the final nail in America’s coffin, debt was fairly low. Hence, simply decoupling from Gold, was enough to get sufficient debt-growth/debasement to facilitate the desired theft from America’s productive people; by idle, incompetent, clueless and expendable, but connected banksters. This was the “Yuppie” era. This lasted for a few decades, up until the 2000 blowoff. Plenty of less-than-literates still thinks this was some form of economic golden age. Reaganomics blah blah nonsense. In reality, it was just the same theft-by-debasement racket we have today. Just early enough in the cycle that the theft could be perpetrated with less surrounding hoopla.
Then, once this initial runup had ran its course, another way had to be found to keep the debt growing, and hence the theft rackets running: Artificially low rates. That lasted until 2009 or so.
After that, more debt was needed, or the useless, connected, expendable leeches would run the risk of wealth and income flowing to productive people again, rather than to useless but connected idiots like themselves. So, QE…
When that runs out of room as well, we’ll get MMT. ETc., etc.
All in order to keep the theft rackets going, and expendable leeches serving no purpose whatsoever in splendor. At the expense of everyone else.
The important takeaway being: There is no difference. It’s all debt/money printing. All facilitated by privileged morons having access to a printing press which they can use to rob their betters by way of debasement. The rest, is simply theater.
Nonsense. There have always been, and always will be, promoters who are hucksters, and who raise money with grandiose ideas that never bring positive returns. Whether it was the South Sea bubble, or whatever, it has always existed. It probably even existed in Neanderthal times. We’d like to believe that we are special, and we can invent new problems, but not so.
There were 900 IPO’s in 1999-2000, followed by a stock market collapse and deep recession. Things were a lot crazier back then.
Oh how I miss stocks trading in fractions.. that was the best thing about trading in that dot com era. . That and ISLD ecn, those who traded back then should know what I mean
It’s America in the progressive era. Braindead idiots playing businessman with money The Fed stole for them. That’s all that’s left of this dump.
Bingo.
They could merge with one of the apps like Grindr or Tinder and rename it We Twerk.
The most intersting one is Moe Bone-Saw-Man’s Aramco.
Failure to launch (which you can’t say of space-x).
WeWork’s failure is concentrating on real-estate instead of creating a one stop “pay us and we do the nasty paperwork” for small businesses. I don”t need a nice desk and X chair. I need someone to track everything the evil Government wants reported and done.