Bob Dylan: "Go away from my IPO window, leave at your own chosen speed."
Okay, maybe he didn't mention the word "IPO." And maybe the next line of "It ain't me babe" should be reversed: "you aren't the one I want babe, you aren't the one I need."
I keep thinking of these lyrics, they keep rolling around in my head because we are getting to the point in the IPO cycle where we seriously do not want companies to come public and we don't know the valuations and we feel we are being fooled by bankers who are either fooling themselves or know better but say nothing because they want to please their clients and they want the fees.
Ever since the year began I said the biggest risk to this market is new supply and, more precisely, new bad supply, stock that no one needs, no one wants, except the bankers and their progeny.
The valuations are fanciful: whatever the last round of investors claim it to be. Was WeWork ever really valued at $47 billion? It doesn't matter because we heard that the so-called ultimate arbiter, Masa Son and the Softbank Vision Fund, put in multiple billions at that level. The snarky, on-point Business Insider last week penned a brilliant piece about a fellow by the name of Ron Fisher who may be the most powerful investor on earth because, as head of investment at SoftBank group, he's been dictating pricing. BI credited Softbank (SFTBY) and Fisher by extension with "overinflating WeWork's valuation in late state private funding."
Or, in other words, despite WeWork being run by a truly suboptimal CEO, Adam Neumann, it seems that Softbank itself lifted the value of the company by investing at ever higher prices. It would be like walking up a stock and then blowing it out at an artificial level. Except Neumann was so busy self-destructing it didn't work. Hence the incredible stories that after seeing the deal scrapped as it went below half of the last price, now SoftBank is said to want to get rid of Neumann to get the valuation back on track.
The whole thing's a sideshow, of course, because during this period we have learned of massive self-dealing by Neumann, huge losses, and a stock that seems ready to be made for shorting wherever it comes public as a proxy for falling real estate prices around the country, as, alas, it is just a real estate firm.
We've seen this before. Who knows how Uber (UBER) really got to a $68 billion valuation through its last funding level, except that there might have been people who put money in salivating about stories of a $120 billion valuation when it came public - Google it. Of course now it's at $55 billion and sinking pretty quickly as investors now think it's just a money losing cab company.
I think it's only going to get worse. Ten drones took out half of Saudi Aramco's production but now bankers are lined up for what could be the first trillion IPO. Doesn't that feel like the $47 billion for WeWork or the $120 billion for Uber? It does to me.
If you had to design an IPO that could sop up money and hurt this market I don't think you could find one worse than Saudi Aramco: a fossil fuel behemoth in a market that hates even the best, Exxon (XOM) and Chevron (CVX) , and annihilates the worst daily. We do wish this IPO would go away from the window. Or that the window would at last be shut. But when you line up nine banks to do a deal, it's going to get done. by hook or by crook - an apt cliché for this one.
It's not just big ones. There are small ones that smell, too. Sure all of those ads might make Peloton's stock exciting, but in the end, that, too is just an exercycle with a twist.
Or the delusionary investors who just put in $225 million in Postmates at a $1.8 billion level. That's all we need, another loss-making delivery company. Investors are shorting Grubhub (GRUB) to play the collapse of DoorDash. Now those who bought on this Postmates round can short Grubhub, too. Do you think Square (SQ) sold competitor Caviar to DoorDash for $410 million because it liked the business?
As far as I am concerned it's one giant travesty, a predictable travesty, one that I railed against broken-record like for months on end. It's here now, it's hurting the market, and it's only going to get worse until every venture capitalist and his brother and all of the johnny-come-latelies jam nearly every deal down our throats at prices inflated by their own greed.