Death Knell – Or Big Fizzle – For The High-Growth, Red-Ink IPO?

Are we witnessing the death knell for the IPO that is tied to high-growth, but money-losing, companies?

Whether WeWork – specifically, the parent company We, though we’ll use the names a bit interchangeably – files to go public at a reduced valuation, delays its IPO or scraps it altogether, there may be some handwriting on the wall.

WeWork seemingly has a slew of unpalatable options ahead. The latest wrinkle, per The Wall Street Journal, is that the real estate company is in talks with SoftBank about investments (the direct kind) that might set the stage for a public debut next year. In the middle of it all is the seemingly implicit admission that the $47 billion valuation that was in place with the latest funding round is … too high. Shave that in half, and maybe, just maybe, investors will be more receptive.

And there’s precedent to doubt a warm reception. Slack’s shares, to put it charitably, are slack. Uber is by no means an uber stock. Lyft shares have no lift.

These are all firms that have, individually, lost hundreds of millions and even billions of dollars as top lines have soared. Grabbing capital is relatively easy if the latter continues, enough so that the former turns from red to black.

Suddenly, that Goldilocks scenario seems less a guarantee, as economic data hints at recession. The jobs numbers have come in below expectations, which may not auger well for a company like WeWork, whose fortunes, of course, hinge on healthy macro trends and business expansion. Smaller firms seem especially vulnerable.

Investors have clearly signaled that attention must be paid to operating leverage. In addition, some business models – ride-hailing and shared workspaces among them – have yet to be fully recession-tested, and have yet to ride out a full business/economic cycle.

Perhaps, then, the sentiment is shifting to the point that IPO stands for Interested in Profits Only.

Sizzle

Beating the fraudsters: Visa said that since their inception, chip cards have reduced counterfeit fraud by 87 percent. Counterfeit fraud dollars for all U.S. merchants dropped as measured from September 2015 to March 2019. Chip cards are accepted by 3.7 million merchants, up 825 percent from September 2015.

Brick-and-mortar retail – in China: Costco’s first China store comes five years after eCommerce operations began there. The brick-and-mortar foray proved to be a hit, as crowds gathered to the point where traffic controls had to be put in place to limit headcount to 2,000 consumers a day.

Cross-border commerce: Cross-border pays, especially when it comes to billion-dollar acquisitions. Alibaba has been, according to reports, close to wrapping up its $2 billion acquisition of NetEase’s cross-border retail platform Kaola. Kaola will merge with Alibaba’s Tmall Global while still operating independently to create a massive cross-border eCommerce business.

Fizzle

Libra: Amid a slew of headlines surrounding the yet-to-be-launched cryptocurrency (still targeting a 2020 debut), EU regulators are investigating whether Facebook’s planned cryptocurrency will harm competition. The news comes after European Central Bank board member Yves Mersch said Facebook’s Libra could affect its ability to set monetary policy.

Ride-hailing stocks: No traction for Uber and Lyft on Wall Street and a long road to stock price recovery stretches ahead. Shares of Uber and Lyft hit their lowest levels ever this past week. Investors continue to be concerned about operating losses, and about the potential impact of classifying drivers as employees.

Trucking: Smaller trucking players are being squeezed out amid higher costs and lower spot pricing. Supply Chain Dive reported this week that the number of shuttered trucking companies has more than tripled so far in 2019 to 640, according to a study from Broughton Capital.