5 minute read
IPOs Aren't For Real
from July 2019
IPOs Aren’t For Real
By Vonetta Logan
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IPOs (initial public offerings) are back, baby! Here at luckbox, the editors are partying like it’s the dot com bubble of 1999. To borrow a line from the seminal film The Social Network, the story of Facebook (FB) evolving from dorm-room-based stalking site to global threat to democracy, co-creator of Napster (NAPS) Sean Parker supposedly tells a young Mark Zuckerburg, “A million dollars isn’t cool. You know what’s cool? A billion dollars!” Except in this current class of IPOs it’s more like, “Losing a million dollars isn’t cool. You know what’s cool? Losing a billion dollars, but then deciding to go public anyway.” OK, that’s not as catchy, but that’s what’s happening with the latest stable of unicorns—those private companies worth a billion dollars or more. Why can’t these pretty ponies hit their stride?
Grab any high school textbook ... do high schools still use textbooks? Anyway, grab any tablet/e-reader/textbook and it will probably define IPOs as companies raising capital by offering their first shares of stock to momand-pop investors who are hungry for a real piece of some grade-A capitalist pie. “Tale as old as time, true as it can be, investors all get fleeeeeeced.”
No Beauty and the Beast fans?
Traders and company executives gather in May for the Uber Technologies IPO on the trading floor of the New York Stock Exchange.
Fake IPOs
Scrappy entrepreneurs taking their companies public to raise capital, and average investors getting in on the ground floor, hasn’t happened in many moons. But who wants to read about venture capital and private investment funds liquidating their shares and painting the top of the market? In a report published last year titled, “What is the point of the equity market?” Duncan Lamont, head of research and analytics for Schroders, explains that the number of U.S.- listed companies has, “shrunk by around half over the past 20 years.” And that, “financing needs can be met more cheaply and easily by other sources, without much of the baggage that comes with public listing.” Is there a dating market that also comes without baggage? Asking for a friend. Ah sweet, free and easy cash flow. Remember, interest rates hovered near zero for a long time and a lot of large venture capital and private equity firms were making it rain like it was a Drake video.
A guy just raised $1.6 million for water in a can called “Liquid Death.” What a time to be alive! Our public equity markets are priced to perfection, and individual investors are trading in the most liquid and efficient markets ever. Not only are the markets liquid, but they’re transparent, and the market doesn’t even bat an eye to mark down the price of a formerly high-flying unicorn. Y’all remember when Snapchat (SNAP) went public at $24 a share, then Kylie Jenner snapped her fingers like Thanos and now Snap is worth half that? Uber’s market cap is also now trading at half of what Morgan Stanley told accredited investors Uber was worth. Morgan Stanley collected $40 million in fees and was in a nowin situation if they had priced it lower, but don’t get mad when the devil lies to you.
Who can blame private companies for wanting to remain in the sweet embrace of the ample bosom that is the debt market? “You guys aren’t profitable yet? Sure, here’s a check for 10 times revenue...get outta here ya scamps!”
IPOs as ATMs
From Barron’s: “The IPO market … provides a way for private investors to monetize investments—that is to cash out their profits.” The shift has also meant that the IPO process produces a windfall for some employees who, “have been granted shares or options as compensation and want to cash out.” So, if you’re keeping score, it’s a win for private equity, it’s a win for the newly minted tech millionaires and it’s a big fat loss for regular retail investors. That was fun. Let’s play two!
Lamont writes, “Given that growth is generally most rapid in those earlier years, it is highly likely that public market investors are missing out on returns as a result.” Well, this is sucky. luckbox wanted to party like it was 1999 … had Dr. Martens and a choker necklace picked out. Well, the good news is that a tighter timeline for the availability of listed options on publicly traded underlyings means even more opportunities for retail investors. This year has seen an increase in the number of companies coming to market, and that means more two-sided action for investors. So fitting in with the gaming theme of this month’s issue of luckbox, the editors invite readers to choose a fighter!
Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan
RAISING CAPITAL OR CASHING IN?
These three recent hot IPOs all have listed options and decent volume. Who ya got in Battle Royale?
Uber Technologies
(UBER) IPO: May 2019 Current Market Cap: $67 billion
Strengths:
-Everybody and they momma uses it.
-Had the third-highest market valuation for an IPO behind Facebook and Alibaba (BABA).
-Competitive pricing makes it almost as cheap as taking public transportation.
Weaknesses:
-Consistently burns through a billion dollars in a quarter.
-Stock lost money on IPO day. Angry investors claimed Morgan Stanley lied to them (lol).
-Threatening to replace all of its workers with robots.
Special Skills:
Getting your drunk ass home after too many dranks at da club.
(PINS) IPO: April 2019 Current Market Cap: $14 billion
Strengths:
-Successful IPO.
-Visual content format is an advertisers wet dream.
-Steadily growing its MAUs (monthly active users) for an established platform.
Weaknesses:
-Stigma of being “chicks only” means more diverse user base is harder to accomplish.
-Stumbled in first earnings report—lost $41 million in Q1.
-Homemade sunscreen recipes leave users burned.
Special Skills:
Helps make a bomb-ass spicy buffalo chicken cheese dip.
Beyond Meat
(BYND) IPO: May 2019 Current Market Cap: $5.5 billion
Strengths:
-Holds the title of Most Successful IPO of the Year.
-Triple-digit growth over IPO price.
-Instant “feel good” factor knowing its products aren’t killing the planet.
Weaknesses:
-Generated $30 million in losses last year on revenue of only $88 million.
-May not be able to label themselves as “meat” if EU law passes.
-Has competition in “Impossible Burger” and from actual cows.
Special Skills:
Makes hanging out with a vegan significant other a bit more bearable.
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