Simon Black at SovereignMan.com recently put out an interesting expose about WeWork, the co-working (fast becoming co-everything) company, and its astronomically valued IPO. He calls it ‘the latest sign that absolutely nothing makes sense anymore’.
There is clearly a long list of such things at this point. My favourite is the broad chorus of chants — ‘this is not a bubble!’ — when stocks have already exceeded the percent gains and time period of the most recent bubble from 1995–2000, and even the Roaring 20s bubble from 1925–29.
But back to WeWork. Black calls it ‘a real estate company that owns practically zero real estate’.
The business model is actually simple. They lease large tracts of commercial real estate long term and then sublease those tracts to smaller businesses shorter term. No problem with that…
Except that there is another company doing the exact same thing that is highly profitable at $350 million for the first half of 2019. WeWork lost $1 billion in the same six-month period. Regus (OTCMKTS: IWGFF) has 60 million sq ft and growing, while WeWork only has 10 million.
But here’s what’s insane: While Regus is valued at just under $5 billion, this money-sucking start-up will be valued at $50 billion — 10 times that of their competitor!
Black sees the secret difference as being that WeWork’s founder was able to convince investors that this is a technology company, not a mere lessor of office space. But there is nothing about its ‘technology’ in the offering and promotion. Where’s the R&D budget? Or is the money just going to BS marketing?
The ultimate marketing catch phrase for the company is its mission ‘to elevate the world’s consciousness’. They are, of course, ‘creating community’ for people and small businesses. I heard a cryptocurrency expert say the same thing for its ultimate mission.
That’s what happens in a bubble. More and more people invest simply because stocks or whatever are going up at a high rate. The fundamentals don’t matter. Profits don’t matter.
Most dotcoms had little sales and no profits. Larger ones that did like AOL got up to 400 times earnings per share. No larger company could grow fast enough, long enough to remotely fulfil such valuations.
This makes Snapchat look down to Earth!
Expect a crash like 1929-32
Just as I was finishing writing this article, the co-founder and CEO suddenly started talking about dropping the valuation from the original $65 billion down to as low as $20 billion — or even postponing it. So, reality is already hitting for this overblown IPO. It comes next for the over-amped tech stocks and FAANGS!
In Australia the WAAAX stocks, which include Wisetech Global Ltd [ASX:WTC], Appen Ltd [ASX:APX], Altium Ltd [ASX:ALU], Afterpay Touch Group Ltd [ASX:APT] and Xero Ltd [ASX:XRO] are the comparable set of inflated earnings fluff.
Their share price growth has been staggering — but their earnings are limited.
Here are the WAAAX P/E ratios:
Two of them aren’t even profitable!
And when the knives come out, be prepared for a massive reversal on WAAAX stocks.
My rough forecast: The tech-laden NASDAQ makes a final rally to as high as 10,000 by early 2020, then collapses to around 1,100 by late 2022 or so. Just like what happened in the crash of 2000–02, only worse this time.
Since this is the final bubble, its crash should be more like 1929–32.
Then you can look at buying this BS company and help it elevate consciousness, if it still exists.
For The Rum Rebellion
PS: This FREE report reveals that both bitcoin and gold could soon soar. To find out what’s set to kick-start this ‘Wealth War’…claim your FREE report now.