Value Investing

Why You Should Pass on the Biggest IPO of All Time

By Justin Spittler, editor, Casey Daily Dispatch

Uber is going public.

Uber, as you probably know, is a popular ridesharing company. It allows you to fetch a personal driver using your smartphone.

It’s a truly revolutionary company… and one of the world’s most valuable.

During its last capital raise in August, Uber was valued at $76 billion. That’s far more than General Motors, Ford, and Tesla are worth.

And Uber isn’t even profitable. It lost $1.1 billion last quarter. So we’re talking about a serious valuation here.

But the company could soon be worth a lot more than that…

• Uber filed paperwork for an initial public offering (IPO) two weeks ago…

An IPO is when a private company offers shares to the public for the first time.

Now, we don’t know exactly when Uber’s IPO will happen… But many people believe it will be as soon as April 2019. Previously, Uber planned to go public in the fall of 2019.

So it just bumped up its IPO date by two quarters.

According to The Wall Street Journal, Uber could go public at a $120 billion valuation. That’s far more than what the company was valued at just four months ago.

At that number, Uber would only need to offer 21% of its shares to become the biggest IPO ever.

And I imagine many investors will buy Uber’s stock the second it starts trading. But I’d steer clear of this IPO for a simple reason.

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• Uber doesn’t need to go public…

It’s already one of the world’s biggest companies.

This is largely because the Federal Reserve cut interest rates to record lows and held them there for nearly a decade. That gave Uber and private companies like it access to pools of cheap money that they never had before.

But there’s another reason Uber carries such an absurd valuation.

We’re also living in one of the biggest financial bubbles ever… one that’s pushed stock, bond, real estate, cryptocurrency, and even private company valuations to dizzying heights.

It’s no surprise that Uber has grown into a behemoth, despite being a private company.

• Why go public now?…

Well, The New York Times recently reported that Uber bumped up its IPO date due to “concerns that a recession might be coming.”

And it has good reason to be concerned. As I explained in this essay, the 10-year Treasury and 2-year Treasury yield curve – one of the world’s most-trusted economic indicators – is on the verge of flashing recession.

But I think there’s a bigger reason…

• The window to go public at a rich valuation is closing…

Just look at what’s happening with stocks. They’re getting absolutely crushed.

The S&P 500 is down nearly 13% since October. The Dow Jones Industrial Average is down more than 11% over the same period.

In other words, we’ve entered a climate where most investors don’t want to gamble on unproven and unprofitable companies.

The recent Moderna Therapeutics IPO is proof of this…

Moderna is a biotech company that focuses on drug discovery and development. But it doesn’t make any money. Instead, it burns through cash.

And yet, it had the biggest biotech IPO ever.

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But it didn’t go according to plan. Moderna’s shares plummeted almost 20% on its first day of trading.

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• None of this bodes well for Uber’s IPO…

But this essay is about much more than one company.

You see, Uber isn’t the only “unicorn” racing to go public.

A unicorn is a private company worth $1 billion or more. Not long ago, very few companies like this existed. But today, there are more than 300 unicorns, according to CB Insights.

And like Uber, many of these companies are filing for IPOs.

Take Lyft – another ridesharing company and Uber’s biggest rival. It filed its IPO paperwork the same day Uber did.

Then there’s Slack, which provides messaging services for businesses. On December 7, it hired Goldman Sachs to be its IPO underwriter.

• Some people might call it a coincidence…

But I see things differently.

I think these three unicorns decided to go public within days of each other because they’re seeing what’s going on with the markets.

They realize the opportunity to go public is closing rapidly. So they’re getting ready to dump their shares on the public.

That’s why I’d think twice before buying into any of these IPOs. You’ll likely get an opportunity to invest in these companies at much better prices.

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• You may even want to lighten up on U.S. stocks because of this…

I say this because the early investors in Uber, Lyft, and Slack include some of the brightest minds in Silicon Valley. They’re what we call the “smart money.”

And if they’re looking to cash out, you might want to do the same.

Now, I’m not saying you should panic and sell everything. But now is a good time to hold more cash than usual.

Regards,


Justin Spittler
Medellín, Colombia 
December 18, 2018

P.S. Keep your eyes peeled tomorrow for a special morning edition of the Dispatch. As you’ll see, Crisis Investing chief analyst Nick Giambruno has urgent news to share regarding the marijuana sector.


Reader Mailbag

Today, readers respond to Doug Casey’s recent interview on the Paris riots…

I thought it was very informative… Things I did not realize about France and Belgium. Thank you.

– Cathy

I am French and live in Paris. I just want to say that Mr. Casey’s analysis is totally right and I approve 98% of the points he put forward. I wish we had in the French mainstream press wise and non-biased commentaries of that quality. Thank you again for this clear and excellent interview.

– Patrick

As always, if you have any questions or suggestions for the Dispatch, send them to us at [email protected].


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Source: https://www.caseyresearch.com

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