More Unicorns Going IPO
Written by: Jack Lau
Happy Buddha Birthday from Hong Kong. Yes, indeed, in Hong Kong, some call this the best of all worlds. Today is actually a day off.
Highlights from last week:
A. Uber finally went public. Unfortunately, on the first day of trading, it fell as much as 7.6%. After raising US 8.1 billion from the market at a valuation of US 82 billion, Uber (a quick math) has lost nearly US 6.2 Billion. Now if a unicorn is a startup worth $1 billion or more, in a single day, Uber has wiped out 6 unicorns. (Of course, the money it has raised has also bred 8 unicorns.). Seems like a lot of unicorns running around and disappearing! One must have a strong heart to bear all this.
B. At the same time, Uber’s rival, Lyft went public in March after raising US $2 Billion. But just in one quarter, it lost US $1.14 Billion at a revenue of US 772 Million. https://techcrunch.com/2019/05/07/lyft-lost-1-14b-in-q1-2019-on-776m-in-revenue/
C. Has any heard of a Starbucks rival in China called Luckin Coffee. Yup. That is a name we should all know soon. It uses a heavily discounted tactic and opened up 2400 stores in China within 2 years. Compared that with Starbucks which has built 6000 stores in 20 years in China. Luckin is likely raising US $500 Million in IPO in New York. And, the tactic is jaw dropping. With only 1 full year of financial reporting in 2018, Luckin reported a revenue of US $125 million in revenue but a loss of $475 Million. And, in the first quarter of 2019, the company lost US $85 Million with a sale of US $71 Million.
It has been a while since we last saw frantic IPO of companies with outsized losses. They all claim to use losses to expand market share. There are quite a number of articles which talk about this recent phenomenon and the past. One of our most favorite analysis was done by New York Times which contrast the duration a company waited before IPO present and past. For instance, during the Yahoo, Amazon, and Google IPO era, companies waited roughly only 3 years before IPO — in the mid 90’s. But after that companies have been waiting a lot longer — 10 to 11 years usually before IPO’s. Take Dropbox, Pinterest, Uber etc….
But, above all, being old fashioned, we could not have helped but think, is this crash and burn strategy really the right way for us to deploy resources. Yes, people pointed out that Amazon as an example. It took Amazon 5 years after IPO to break even. And, it was not until Amazon’s success in Cloud business that Amazon became truly profitable.
Hmm… Growing up in the Hewlett-Packard generation, we are still not used to this — no matter how many times people have told us.
And, sometimes we just think out loud. If these monies were to go into research and education, how would the world have changed?
Let’s take a quick look:
MIT’s annual expenditure is roughly US $3.6 Billion.
Cambridge is about 2 Billion pounds (roughly US $2.6 billion), but only 500 million pounds (US$ 650 Million) in research. https://en.wikipedia.org/wiki/University_of_Cambridge
A typical PhD fellowship is probably on the order of US 25K to 40K a year? A billion dollars would feed how many PhD’s now? Hmm…. 25,000 PhDs? Ok maybe we are really too old fashioned. Or, of course, we can drink more coffee instead….. 🙂