WeWork IPO, the Straw that Breaks the Stock Market’s Back? Valuation Plunged by up to 79%

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

“They’re Going to Screw Up the Market”: Jim Cramer, on the moment-of-truth effects of the WeWork IPO.

Much like the Fed, as some would say, Jim Cramer has a dual mandate: to entertain and to pump up the markets. He is certainly excellent as an entertainer. But this morning on CNBC’s “Squawk Box,” he let bleed through just how concerned he is about the stock market that is teetering at the top to such an extent that a single, messy, overhyped company going public will “screw up” the entire market.

He wants the WeWork deal “to go away,” he said. “I don’t want WeWork. I mean, I don’t want WeWork at any price.”

There are not many companies that rushed toward an IPO with bigger pre-IPO losses than WeWork – Uber might have been the only one.

But what’s killing the appetite for this deal isn’t just the mega-losses currently, and more mega-losses forever until the money runs out – here I vivisect its earnings report: How Can a Company with $1.8 Billion in Revenue Lose $1.9 Billion? WeWork Shows How. And it isn’t just that the prices of Uber and Lyft shares have plunged 29% and 48% from their respective peaks since their IPOs.

It’s the entire approach by WeWork CEO Adam Neumann to totally control the company and rip off shareholders with self-dealing in little and big ways.

Today, WeWork – under its new moniker The We Co., announced plans in its amended IPO filing (S-1/A) to list its shares on the Nasdaq. In an IPO, new investors are buying shares that the company and/or insiders sell, and via this tactic, insiders can unload some of their shares and the company can raise a ton of new money from new investors to burn – and burn is exactly what WeWork will do with it.

A month ago, I pooh-poohed WeWork’s initial IPO filing: In Hilarious IPO Filing, WeWork Dreams of $3 Trillion in Revenue But Has Billions in Losses. Red-Ink Massacre to Come in 2nd Half. But I won’t do any pooh-poohing today, I’ll let Cramer do it. He’s a lot more colorful than I am.

But one thing I want to point out: The collapsing “valuation” of the company as figured by the future IPO price. Just about every day, there is a new number, and investors refuse to nibble, and then there’s a lower number the next day, and it’s lower by the billions from the prior number, and investors still refuse to nibble. And then there’s an even lower number, as if it were a race to heck, where this stock belongs.

As private company, WeWork was “valued” at $47 billion. Meaning that at the last round of fund-raising, investors that put money into the company did so by paying a price per share that valued the overall company at $47 billion. All this is a lot of hocus-pocus negotiated behind closed doors, whose purpose is to stir up a feeding frenzy among the next batch of investors, now including IPO investors.

By this morning, the IPO valuation had fallen to “as low as” $10 billion, according to leaks dutifully reported by CNBC, Reuters, and elsewhere. From $47 billion to $10 billion would be a collapse in value of 79%.

Cramer is worried that this misbegotten deal that goes “down, down, down,” as he said, will single-handedly take down the market that he’d labored years to pump and hype. And this is what he said on CNBC:

“We don’t want that deal. I wish they would just go away.”

“I just want it to go away. I don’t want WeWork. I mean, I don’t want WeWork at any price. It’s too top of the world.”

“It sounds like, ‘what a crybaby,’ but there are certain deals that come, and they can just really take the air out of any market.”

“They can just say, ‘we’re awful, and we’re just going to wait until we’re good again.’ Why do they just have to keep going down, down, down [with the IPO price]?

CNBC co-anchor: “Because they need the money.”

“I know, but we don’t want to give them money. They’re just going to screw up the market.”

And he exhorted whoever was viewing the show: “Will you stop the WeWork deal, please! Let’s stop WeWork.”

That’s how worried Cramer is that this misbegotten WeWork IPO deal, all on its own, can be the final straw that breaks the market’s back – that’s how overloaded with hype and ludicrously priced stocks that market already is.

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