Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

The Plight of the Unicorn: The Bubble Bursts

  by    0   2

The unicorns are dying.

Markets seemed to really wake up to the plight of the unicorn when WeWork aborted its much-anticipated IPO, but the air started coming out of the unicorn bubble long before WeWork’s IPO demise.

Unicorns are privately held companies valued over $1 billion. Companies like Lyft, Chewie, Uber and WeWork were the darlings of WallStreet. Their IPOs were much-anticipated by investors. They are also the poster children for easy-money induced market mania, and their IPOs were crucial for maintaining the bubble.

In an article published on CNBC,  former Nasdaq CEO Robert Greifeld compared the unicorn implosion with the popping of the dot-com bubble.

WeWork’s aborted IPO may come to mark the end of the current “unicorn” bubble the way the scuttled merger between Yahoo and eBay signaled the start of the dotcom crash in 2000. Having become CEO of Nasdaq in 2003, I saw up close the damage caused by the growth-over-profits philosophy in that earlier era, and WeWork’s spectacular fall – from the year’s most anticipated IPO to a company with a speculative-level credit rating that may run out of funds within a year – rings many bells.”

Greifeld highlighted a number of comparisons between dot-com mania and the unicorn frenzy.

  • Funding feeding frenzy.
  • Messianic founders.
  • Governance is for saps
  • The ho-hum in sexy packaging
  • Unsustainable business model.

You can add one more comparison to that list – easy money. The dot-com and unicorn bubbles were both made possible by Federal Reserve policy that kept interest rates artificially low and allowed companies like WeWork to leverage up and operate for years without making a profit. Speculative money flowed into these companies.

In a nutshell, these companies never bothered with making a profit. They were focused on the IPO. The strategy was to cash out on the backs of stock market investors who didn’t care whether or not the company was making money. They sacrificed profitability to deliver value to the customer in order to create a “sexy” story.

Peter Schiff has talked extensively about these unicorn companies in his podcast. These money-losing stocks are putting a significant drag on the markets. As Peter put it, these stocks are the weak links in the chain. The weak links break first and the rest of the chain follows.

If investors are no longer willing to finance money-losing companies, if that type of speculative fervor has come to an end, this is a huge bell ringing on Wall Street, and it has massive implications, not only for the stock market, but for the overall economy.”

WeWork woke a lot of people up to the problem, but it was hardly the beginning. Consider the plight of these unicorn IPOs.

On the first day of trading, Lyft shares plunged 10% after an initial pop to $88.66. Today the stock is trading around $39. That’s a 56% decline since the IPO pop.

Uber was hoping for an IPO of $120 billion. Then the company announced it had lost $10 billion in three years. Uber went public with a $45 per share IPO for a total valuation of $82 billion. Today the stock is trading below $30, down 37% from its peak and 34% from the IPO price.

Then there was Beyond Meat. It initially surged in a vivid display of market mania after its IPO, rising 645%. It traded as high as $239.71. Today, the shares trade at just over $141.34, down 41%.

Here are some other unicorn IPOs and their fates compiled by WolfStreet.

  • Peloton: -22% from its IPO price on September 26
  • Dynatrace: -30% from its peak
  • Slack Technologies: -39% from its first-day “pop”
  • Crowdstrike: -35% from its peak in August
  • Chewy: -37% from its peak three days after the IPO in June
  • Pinterest: -37% from its peak in August
  • Zoom Video: -31% from its peak in June
  • PagerDuty: -57% from its peak in June.

WolfStreet summed up the unicorn fiasco.

Everyone – including infamously me – has been trying to pinpoint the exact moment when the magnificent startup-unicorn-bubble broke, and I mean not just broke but imploded spectacularly. All of the biggest upcoming IPOs were cancelled. All the biggest ones that got out the IPO window this year crashed and burned. And the $47-billion WeWork unicorn is now awaiting dismemberment or a bailout from Softbank after its IPO hopes were annihilated by a catastrophic event, called “market conditions,” when some sort of rationality starts to reinsert itself in tiny baby steps into the market.”

It’s another refrain of an all-too-familiar song- the Fed inflates bubble – bubbles pop.

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

The Lurking Inflation Monster

Where’s the inflation? The Federal Reserve printed money for nearly a decade, and yet, inflation – as measured by the government – has been “muted.” What gives?

READ MORE →

Gold Set to Join the “All-Time Highs Club” — Bloomberg Intelligence

Gold is poised to join the “all-time-highs” club in the upcoming decade. No, this isn’t the musing of some gold-bug. It’s analysis from a pretty mainstream source — Bloomberg Intelligence. Stocks have set new records over the last several weeks and the dollar hit 2-year highs this fall. But writing in the commodity outlook, Bloomberg […]

READ MORE →

Recession Early Warning? Spending By the Wealthy Is Slowing

America’s economy is built on consumption. Average Americans have been pushing the US economy along, spending money they don’t have. But as we’ve reported, there are signals that the credit cards might be close to maxed out. Now there appears to be another warning sign – the wealthy are reining in their spending.

READ MORE →

Poland Brings Gold Home; Calls It a Symbol of Strength

Poland has repatriated 100 tons of gold from England. National Bank of Poland Governor Adam Glapiński announced the yellow metal’s return home on Monday. “The gold symbolizes the strength of the country,” Glapiński told reporters.

READ MORE →

Is the Auto Loan Bubble Nearing Its Popping Point?

a check engine light is onHow much more can the auto loan bubble blow up before it pops? Total auto loans and leases outstanding for new and used vehicles increased by another 4.3% year-on-year in the third quarter, according to the latest data from the Federal Reserve. This was a factor in pushing total American consumer debt to a new […]

READ MORE →

Comments are closed.

Call Now