Big Fizzles For Once High-Flying Unicorn Investors

The problem with large investments – the type that run into the billions of dollars – is that just as gains can be astronomical, the losses can be devastating.

Emily Dickinson once wrote that “hope is the thing with feathers.” This illustration applies nicely to the tech unicorn: a synthesis of hope – and, in a way, winged flight – in terms of soaring stock prices.

Then it can come crashing down, as illustrated these past several days. WeWork is exhibit A, with a blow to key investor SoftBank. As has been reported, SoftBank saved WeWork with a $9.5 billion rescue, and also said it had taken its valuation of the beleaguered workspace company down by 80 percent, to around $5 billion at the end of the most recent quarter. That’s a far cry from January of this year, when WeWork raised $1 billion in a funding round (that included SoftBank) and its implied valuation was $47 billion.

What happened? Reality, for starters. Consider the fact that signing on to long-term leases, taking on liabilities in the billions of dollars and taking in revenues in the form of short-term leases – right into the face of an economic slowdown – might be a business model facing significant headwinds.

Interestingly, if you go back to the S-1 filing WeWork made with the Securities and Exchange Commission, you’ll find that property and equipment – i.e., physical, tangible assets – were valued at $6.7 billion. In effect, SoftBank is stating that the company’s operations are worth less than furniture, computers and whatever might be in the proverbial cupboard.

WeWork never made it to market. There are any number of tech unicorns that have been grounded post-IPO, among them Slack, Lyft, Uber and Peloton. Promises to disrupt the way business has always been done are exciting, yes, but profits matter.

Uber may be showing traction in its bid to become a platform for many types of markets, and is eyeing positive EBITDA in 2021. The road is a bumpy one. In another example, Fitbit, a busted IPO, was bought by Google for a fraction of the price where it once traded, after losing hundreds of millions of dollars in operating red ink.

Toward all of these firms, investors are casting a wary, perhaps weary, eye. The brush they are using, fair or not, is a broad one: Beware of high fliers, because what looks like a unicorn today may be a lame horse tomorrow, shorn of feathers, glory and hope.

Sizzle

Mobile payments in China: Tencent says it will support international card schemes in its wallet, and this opens the door for Visa cardholders to use their cards in the country at millions of locations where WeChat Pay is accepted.

Cross-border remittances and payments: MoneyGram reports growth in digital payments outside the U.S., and Flywire strikes a pact with Bank of America to simplify cross-border payments for higher education and corporate clients.

Online holiday shopping: eCommerce spending this holiday may be merry, as Adobe estimates that total web spend is on track to increase by more than 14 percent to $143.7 billion.

Fizzle

Airbnb: More regulations loom for short-term rentals – at least in Jersey City – which could have repercussions for the firm as an IPO looms.

Libra: Competition looms for the would-be crypto, as China is prepping a digital version of the yuan. Now comes the news, too, that the European Union is urging the European Central Bank to issue its own digital currency.

Big tech regulation: A new bill that is debuting in Congress – the Online Privacy Act – would create the Digital Privacy Agency. The agency would be tasked with regulating tech firms, issuing regulations and enforcing privacy rules.