April Fools?

Ponzi Unicorns!

Lyft Inc. went public on Friday at $72.00 a share, bumping up to $78.29 at the end of the day, even reaching $88.60 in one market.  Connected monied investors, who got the initial shares in the IPO, hopefully dumped them at that point.  By the way, this is typical IPO sales behavior, to sell quickly and make a quick profit on the strength of the hype.  On Monday, the shares closed down at $69.01.  What it will do today and in the future is not predictable.  This is in an ‘up’ market nearing the record highs of January 2018.

U.S. version of Indian Dabbawalas lunch box delivery boys.

What is obvious is that Lyft has never made a profit.  Many of their drivers, who are wrongly classified as ‘independent contractors,’ sometimes average as little as $3.57 an hour.  There are efforts to form a union and to change the classification to ‘employee.’ A strike by drivers against Lyft and Uber just happened in Los Angeles over what can only be called a wage cut.  The Intercept pointed out yesterday that ‘gig’ companies are trying to race to the IPO finish line before labor laws catch up with them.  Heavy legal liabilities hang over these companies related to the 'independent contractor' fiction.

Lyft-Uber drives Taxi drivers into poverty

Last year IPOs from ‘Snapchat” and “Blue Apron” still exist below their IPO price, though Docusign is above it. Of the 20 companies that went public last year from Silicon Valley and bio-Pharma, only a few ever made a profit before their IPO offering. 

Are there other Silicon Valley-type firms that have never made a profit besides Lyft and Tesla, yet might do an IPO on Wall Street this year?  Well yes!  Uber Technologies Inc., Pinterest Inc., Palantir, Zoom, Slack Technologies Inc., Postmates Inc. and WeWork all are in the pipeline.  Airbnb Inc. is another, though it became profitable 2 years ago after being in business since 2007.  These companies have been floated by venture capitalists, and will now go on to try to get money from the general public.

All these firms do not return a dividend to their investors. So the only way to make a profit is that their price will go higher.  Then ‘investors’ can sell the stock to the next gambler for a better price than what they bought it for.  That is the ‘ponzi’ trade. 

The poster child for recent no-profitability is Theranos, which was a privately held company once valued at $7B, but now worth $0.  Theranos was a Silicon Valley tech outfit that claimed it could test for 200 kinds of health problems through a simple ‘fingerprick’ blood test submitted to a smallish black box called the “Edison.”  It was run by a wide-eyed blonde sociopath named Elizabeth Holmes, who duped people like George Schultz, Henry Kissinger, Bill Clinton and Betsy DeVos into endorsing her and her product.  The box and pinprick didn’t work, though it sucked in multi-millions in investor money and got a short contract from Arizona Walgreens.  Theranos never made money.  The SEC, CMS, the courts and the press eventually caught up to Theranos in 2015 and it is now defunct.  Its story is now an excellent documentary on HBO, “Out For Blood in Silicon Valley.”

Does History Repeat Itself in the Markets?

If you have any kind of memory of financial crashes, the 1999-2000 ‘Tech Wreck’ should come to mind in the present situation.  A vast gaggle of internet dot-coms used venture capital and Wall Street backing to promote iffy software products that eventually became a huge wave of IPOs.  Even though almost all of them had never made a profit.  Sound familiar?  They sucked in money from the public and many subsequently collapsed, causing the stock market to take a nose dive, with many individuals losing their shirts.  The NASDAQ lost $5T in stock valuations in two years.

Today, Wall Street has christened these high-valuation, no-profit firms as ‘Unicorns,’ which should give us pause.  Is this new wave of magical IPOs another uni-wreck waiting to happen?  These firms certainly have a longer track record than the dot-coms, but the lack of profits over a number of years remains a heavy cautionary note in a capitalist economy.  This can put a crimp on any prospects of their stock price going up.  A recession in 1-2 years, being predicted even by most bourgeois economists, will not buoy these companies either. So would you like to buy an imaginary and magical creature?

Other reviews on this subject:  “The Ponzi Factor,” “The Great Crash,” (Galbraith); “The Big Short,” “Flash Boys,” “Liar’s Poker,” (all 3 by Lewis); “The Wolf of Wall Street,” (Scorcese); “Griftopia,” (Taibbi); “House of Cards,”  “Liquidated – An Ethnography of Wall Street,” “Den of Thieves,” “Kraft Heinz.” These reviews are all below, so use the blog search box, upper left.

Red Frog

April Fool’s Day 2, 2019