May 10, 5:00 pm EST

We end the week with continued stalemate on a trade deal.  Given that trade talks will continue (despite the tariff escalation), it’s not considered a “no deal.”  That’s a relative positive for markets.

As we discussed, as long as Trump will keep the door open, the Chinese will keep talking, and will (in the meantime) protect their exports by weakening the currency.  The yuan is now trading at its weakest level since early January, when trade talks were re-opened after a month long stalemate.

Now, let’s talk about the Uber IPO today …

It didn’t go well for Silicon Valley.  Uber started trading publicly below the range they expected, and instead of getting a huge opening day “lyft”, it traded down on the day.

We’ve talked quite a bit about the IPOs coming from the Silicon Valley hype machine.  Lyft got it all started, and here’s what that chart looks like now…


With this above chart in mind and the performance of Uber today, let’s revisit an excerpt from my note from last month …

Pro Perspectives – April 16, 2019

Lyft and Uber, dumping shares on the public at a combined $140 billion plus valuation, may mark the end to the Silicon Valley boom cycle.

As we know, Lyft was valued as high as $25 billion when it started trading publicly.  Some paid a $25 billion valuation for the privilege of owning a company that did a little over $2 billion in revenue, while losing almost a billion dollars — with slowing revenue growth and widening losses. It has now shed about $9 billion in market cap in thirteen days.

Uber is on deck.  Uber filed its S-1 this week.  In this public disclosure document, we find a company that has privately raised $24 billion, valued at $68 billion in the private market, that has been thought to float shares at as much as $120 billion valuation.  This is a company that (like Lyft) also with slowing revenue growth and widening losses.  Losses?  The S-1 shows a swing from $ 4 billion loss in 2017, to a near $1 billion profit in 2018.  But if we back out the a couple of unusual items (like the gain of a divestiture of some foreign businesses and an unrealized gain in an “investment”) the company lost $4.2 billion on $11 billion in revenue.

As we discussed last month, the hyper-growth valuations on these perceived hyper-growth companies, are unlikely to get hyper-growth at this stage.  That will be a problem for those taking the bait on the IPO.”

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March 6, 5:00 pm EST

Yesterday we talked about the big IPO agenda for the year.

We have some big Silicon Valley “disrupters” set to go public this year, including Lyft, Uber, WeWork and Airbnb.

Remember, these companies emerged from a post-Great Recession world, where pension funds and sovereign wealth funds were flooding money into Silicon Valley, following the money and regulatory favor from the U.S. government.  Of the $800 billion fiscal stimulus response to the financial crisis, the Obama administration doled out $100 billion worth of funding and grants for “the discovery, development and implementation of various technologies.”  The money followed it, and the private market valuations soared.

Were they based on reality or hype and too much money chasing the dream of the next Facebook?

Let’s take a look today at how the big “disrupters” of the past two years have fared, after much anticipated IPOs.

Dropbox:  Dropbox was priced at $21 per share.  It started trading at over $28.  Today it trades at $22.

Spotify:  Priced at $165.90 per share.  It started trading at $164.  It currently trades at $146.

Snap: Priced at $17 per share.  It started trading at $22.  Today it trades at $9.90.

Nothing good for the average investor that picked up these shares when these stocks went public.

Who has gotten rich? The founders.

The founder of Dropbox is worth $2.3 billion.  His company lost half a billion dollars last year on $1.4 billion in revenue.  Revenue growth is slowing to a near mortal 25% growth rate – and losses are widening dramatically.

Spotify’s founder is now also worth about $2.3 billion.  Revenue growth is slowing too to unexciting levels, and the company is still losing money.

What about Snap?  The Snap founder is worth over $2 billion.  Snap lost $1.2 billion last year, on $1.1 billion in revenue. Revenue growth has gone from 600%, to 100%, to 43% last year.

The hyper-growth valuations are unlikely to get hyper-growth.  I suspect we might see the same with the roster of IPOs this year.

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