Pets.Com IPO Went to Doggie Heaven: Which IPO is Next?

-edited

IPOs are failing. And that's not a good sign. Pulled IPOs are even worse than bad IPOs.

Ringing the Bell

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.

  1. Both Worthless Failures (except for the founders who siphoned off millions)
  2. 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

Comments (58)
No. 1-27
tz3
tz3

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.

tz3
tz3

They could merge with one of the apps like Grindr or Tinder and rename it We Twerk.

Stuki
Stuki

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.

shamrock
shamrock

There were 900 IPO's in 1999-2000, followed by a stock market collapse and deep recession. Things were a lot crazier back then.

2banana
2banana

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.

Greggg
Greggg

Just another pet rock.

Country Bob
Country Bob

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

numike
numike

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.

bradw2k
bradw2k

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.

Greggg
Greggg

Worth the watch: https://www.youtube.com/watch?v=EDvl8qR08Cg

stillCJ
stillCJ

Editor

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.

Ted R
Ted R

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.

Six000mileyear
Six000mileyear

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.

leicestersq
leicestersq

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.

KidHorn
KidHorn

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.

frozeninthenorth
frozeninthenorth

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.

thimk
thimk

more power to Mr. Neumann ! he was able to pull it off legally and make himself a nice bundle . (he sold 100 million of his stock) I mean wouldn't you ? but be leery of buying non voting stock. It gives the voting stock license to strip mine the company. Kinda like private equity. Also Mr WeWork was going to monetize collection of leasing info , . So i guess we are headed back to fundamentals now? The sad part is trillions in stimulus and not much to show for it. excuse me i need to get back to working on my messaging app - "buzzme"

RonJ
RonJ

"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.

RonJ
RonJ

"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.

Bam_Man
Bam_Man

Psychopaths, thieves and con-men, running wild on a field of greed.

Casual_Observer
Casual_Observer

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.

Maximus_Minimus
Maximus_Minimus

It would be interesting to compare the industry of the Chinese IPOs compared to US IPOs. Might open some eyes.

Tony Bennett
Tony Bennett

"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!

Realist
Realist

The IPO market is just another example of the creative/destructive force of Capitalism. No one forces you to invest in startup companies, whether they are dot.com or anything else. Plus, Companies have the right to fail. Isn’t that how it should be?

I see a lot of complaining about “too big to fail”, zombie corporations, corporate bail outs, corporate subsidies, corporate tax breaks, etc. on this blog. Then I see complaining about companies that fail. People seem to complain no matter what.

I am not a big risk taker and did not invest in Pets.com. Neither did I invest in Amazon.com. In hindsight, perhaps I should have invested in Amazon.

Will many of this decades IPOs fail? Yes they will; just like the IPOs of previous decades. But some will be smashing successes. The trick is to pick the most likely successes and the fewest possible failures. If I had invested equal amounts in Pets.com and Amazon when they were first introduced, I would be doing pretty well today.

Carl_R
Carl_R

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.

COACHY1
COACHY1

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.

Country Bob
Country Bob

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!