In Ep. 160 of the Mullooly Asset Show, Tom talks about the disaster that is the WeWork initial public offering (IPO).  He warns the viewers of a few lesson to be learned here, and how the approach more hot IPO’s that will come in the future.

Show Notes

‘WeWork Still Needs Cash After Pulling IPO’ – The Wall Street Journal

Josh Brown’s Remarks on WeWork Valuation – Twitter

Public Service Announcement About WeWork – Transcript

Tom Mullooly: In today’s episode, we’re going to use a public service announcement from our friends at WeWork, so stick around.

Welcome to the Mullooly Asset Show. I’m your host, Tom Mullooly, and this is episode number 160. Thanks for tuning in. We have a public service reminder about initial public offerings, courtesy of WeWork, which was in the process of going public over these last couple of weeks. WeWork, if you’re not familiar with them, they’re an office sharing company. Instead of Mullooly Asset Management, we take out several hundred or a thousand-square-feet office space, instead of doing that, companies can now rent a portion of an office floor through organizations like WeWork. Think of Regus, if you’ve ever heard of them.

As the company was planning their IPO, and IPO stands for initial public offering, the interest in buying shares in the company grew at first but then really started to shrink as more folks started to examine WeWork’s business model. Did it make sense at the prices that they were kicking around as they decided to go public? You’ve got to remember, when a company goes public, when they have their IPO, the company, the founders, are selling their shares to you. There’s an excellent Josh Brown video that we’ll link to in the show notes. You should watch this, because as Josh correctly pointed out, Wall Street was preparing to sell you shares in this company at a $50 billion valuation. They’re a landlord, they’re are rental. This company is now worth $10 billion or less, so we’ll think about that.

Here’s a company that they were planning to price at $50 billion, it’s now worth 20% of that price. In fact, there’s talk this morning as we’re recording this that they are considering scrapping their IPO. WeWork actually announced that they may run out of cash as soon as the second quarter of 2020, that’s next year and maybe six months away. What the heck is going on here? A company that’s on the verge of running out of money now may need to go public just to keep themselves afloat.

Most times, not every time, but most times the initial public offering, the IPO, is where the insiders feel the value is best. But they feel the value is best for them, not necessarily for you, and that’s important to remember. If you’re investing in a company … This is a bad example, but again, an example and not a recommendation. If you were to invest in a company like Microsoft back in 1986, in hindsight, looking back, it was clear to see that they had a spectacular business model and they had an opportunity to make a lot of money and an IPO was certainly a way for them to help raise additional money.

You have to look at the reasons why a company is going public. Is it to fuel certain kinds of growth, growth that they feel very certain about? Or basically are you just the next venture investor and throwing your money at it? Keep in mind, don’t forget that whole idea that the insiders have decided that this is where they finally want to cash in their chips and so they turn shares over to you, the investing public.

That’s a heck of a risk. Don’t know if you want to be doing that.

That’s going to wrap up episode 160. Thanks again for tuning in. See you next time.

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