Submitted by AdventuresInCapitalism.com,
Over the past few quarters, I have become increasingly critical of the Profitless Prosperity Sector, known amongst my friends as the Ponzi Sector.
Why Ponzi Sector?
Because these companies have no profits yet continue to raise new capital by showing explosive revenue growth. Oddly, the more revenue they show, the more money they lose, because incremental revenue is at a negative gross margin. Many of these companies are in consumer facing sectors where the product is not particularly unique. Rather, they are using a tech interface to offer an existing product and effectively subsidizing the consumer to use more of the product. Nothing shows this better than the ridesharing duopoly of Uber and Lyft (LYFT – USA). Therefore, last week’s LYFT IPO was enlightening.
To start with, $2.3 billion of stock was offered. While large for an IPO, it wasn’t particularly large in dollar value or in relationship to the overall purported equity value. Since the IPO, the shares have dropped like a rock without an uptick. As I write this, they’re still dropping and now 10% below the offering price.
While the shares have only had 2 trading days to season thus far, the message seems to be that demand for the Ponzi Sector isn’t as high as previously anticipated.
This must be the panic moment amongst the VC community. Suddenly, their mark-to-fantasy valuations are in doubt. I can guarantee you that the VC community will rally together and find some way to prop LYFT up. Without idiot retail gladly taking these scams off their hands, VC portfolios will detonate. However, LYFT has already told you that outside of closed-door transactions amongst VCs marking up their books, the valuations are already suspect. Furthermore, since anyone who’s bought a share of LYFT on the stock exchange is underwater, I suspect that the desire to buy the next of these Unicorn IPOs will be substantially reduced.
This then weighs on the question of the future of the whole Ponzi Sector. LYFT and UBER need constant equity infusions to fund their never-ending stream of subsidized rides. Looking at the Ponzi Sector as a whole, who will be putting up a few billion a year (per Unicorn)? At some point, you’re talking about a whole lot of money. You can keep funding Unicorns if you believe the IPO will be at a premium to the Series D round. It doesn’t work if you have to actually analyze the business and determine a fair valuation for a company where losses will grow ad infinitum. Even worse, if the IPO window closes, you have to then start worrying about dilution as you raise new capital from private investors to offset accelerating losses. Remember, in a universe where billions are needed per year, the next offering can also be down from the last one done—sometimes by a shockingly large number. Money losing companies need to make payroll or they die—sometimes they cannot choose their cost of capital.
Is the LYFT IPO the inflection point in the Ponzi Sector? The next few weeks will tell. I’m on red alert as I have a list of similar companies that I’d love to buy puts on.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
The people driving for Lyft or Uber are clueless. They have to pay extra for insurance, gas, more oil changes, more maintenance, tires, wear and tear on their vehicle. And then, as independent contractors, they have to pay a greater share of FICA and Medicare wage taxes. Plus they are taking a risk by picking up strangers.
I doubt these people are making minimum wage.
Okay Dutch, if you think uber and lyft are bad, how well do you think the truckers are doing that are basically captive to the same scheme? Only the price of admission is a $200,000 rig. Where do you store it? Where do you maintain it? And they all have those urea injection systems that are maintenance nightmares. Not the trucking companies problem anymore. We’re headed for a reckoning. Capitalism is supposed to pay the ones who take the risk, not the people grifting off the top.
I am at a total loss as to why, supposedly rational investors, put money into these crazy companies. This will not end well and for me is a repeat of 2000 when I lost on some techy companies coming to market. I often bought at stag prices and sold quickly before the rest of the pack caught on. It looks as if this is the plan today as well.
When Amazon starts to crater, then you will know it is time to run for the hills. They are the model for all these ponzis, never reports profits, puts all profit back into business (ergo no tax on capital gains) while they all get great salary and other perks.
Amazon, will either have to make profits, and then pay dividends, or else face the wrath of the market, like this lyft scam.
I don’t think everyday people are buying this garbage but you can bet your butt that administrators of our 401k’s like the criminals at Wells Fargo are loading up the bag holders.
BTW Wells Fargo is my plans administrator at work.
Carry on and please arm up….
“Without idiot retail gladly taking these scams off their hands, VC portfolios will detonate. ” – This is the money shot.
Idiot retail is basically all of the same idiots that think their “financial advisor” is working in their best interest, that think their local politician is “different” than the national crooks in Washington, and that the Government still works for the people.
They live in a fantasy land, every bit as myopic as a Scientologist that believes LRH will come back after a billion year hiatus to save the planet.
I have actually met a LOT of people that believe these things, and trying to get logic in to that hollow space in between their ears is about as difficult as trying to fly to the moon with a balloon.
‘Murica seems to have cornered the market, and to a less extent (at least some of the French have woken up) the rest of the western world on stupid sheeple. And it seems to be producing them faster than these VC’s produce these unicorns for those same sheeple to get fleeced “investing in”.
Unfortunately, as long as there are more stupid people being created everyday, the ponzi economy is probably going to continue unabated. Really, I believe the only thing that will stop the stupid is a external event that forces the idiot masses to change direction, because the apathetic idiots certainly aren’t going to “discover” the truth any time soon, and the con men have a vested interest in continuing to feed the stupid for their maximum benefit.