Whiskey. Tango. Foxtrot.
It was a so-so movie from 2016 (Tina Fey, Margot Robbie, Billy Bob Thornton) that you may remember.
But (thanks Tinglong) what triggered this stream of thought was this article (October 1, 2019), in the series Just Asking Questions:
This is a follow up of Galloway’s August article titled WeWTF where he called WeWork’s $47 billion valuation “insane,” “seriously loco,” and “an illusion.”
In September, he wrote a follow-up (“WeWTF, Part Deux”) after the company postponed its long-awaited IPO. “The lines between vision, bullsh*t, and fraud are pretty narrow,” he wrote. “Something is wrong. Something stinks. Something … Just. Doesn’t. Add. Up.”
I agree with his assessments. Let us begin with J. Dimon and M. Son:
CNBC wants to be friends with Jamie Dimon and Masayoshi Son. It’s hard to believe that the prom queen is addicted to diet pills and a heroin addict. The fall from grace here has been so dramatic and yet so fucking obvious.
I gave an interview recently on a related topic (Business Insider) where the issues of Softbank and high valuations were discussed.
I teach an Uber Case (from Stanford GSB) in my MBA elective (in Mini 2, which begins late October). Of course, we do discuss Travis:
Travis is guilty of being an asshole. That was more like frat-bro-culture problems. The market is going to have to decide how thin the lines are between vision, bullshit, and fraud. Nobody ever accused Kalanick of fraud. You’re going to start hearing that a lot more at WeWork.
What about other Unicorns that are still private?
There’s a lot of them in the SoftBank portfolio. Wag, Compass. These things were kind of insane. Peloton. Peloton is getting pelted so to speak, because that’s more yoga babble. Delivering happiness. It’s a good company, it’s just overvalued. The marketplace is sort of saying that after WeWork and Uber, there’s two types of companies in the unicorn space: ones that are overvalued and ones that are just going to zero.
Guess who went to zero recently? MoviePass. Here is the obituary:
What about ClassPass? Are these subscription-based models viable? Indeed, when are they better or worse than “pay-as-you-go” models such as Groupon or ZenRez (a company in which I am an angel investor and a Advisory Board member)? We study the business models in our paper:
What about Rent-the-Runway? As you know, we studied their inventory and fulfillment policy in our MSOM paper a few years ago:
They raised $125 Million (on a $1 Billion valuation) earlier this year, but are struggling with operational (fulfillment and delivery) issues. Wardrobe malfunction? Here is a recent article:
My view was that even before this customer service disaster, RTR was overvalued (no different from several other private valuations that were too high; see what happened to Uber and Lyft since their highest private rounds), but if they do an IPO, what will be the valuation? (Remember Gilt? They last private valuation was $600 Million; they sold for $250 Million).
Back to Scott Galloway:
Had this consensual hallucination gone on for 60 more days, retail investors would have experienced that loss. So this is a good thing! This is the markets working. Whereas Uber, the consensual hallucination continues. They have to maintain the illusion of growth. They have to maintain the growth story. Without the growth story, they’re worth 20 percent of what they’re worth now. I think that chops off 50 to 80 percent in the next 25 months. WeWork can start from zero. If they act crisply enough, it can still be a nice, cute office-sharing company. Uber has to maintain the hallucination. Uber has to keep chasing that eight ball.
It’s embarrassing for Masayoshi Son, but big deal. MBS’s Saudi Arabia investment fund? Couldn’t happen to a nicer group of people.
And you also have a lot of IPOs that will be affected, but I think that’s a good thing — Peleton’s a great company, but it’s not worth $8 billion. Everyone’s kind of been woken up from their trip.
Here is a recent WSJ article that shows the various haircuts that have occurred.