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Comment by lawrenceyan | Hacker News Reader

I see the looming edge of an economic recession as large swathes of hugely unprofitable companies with heavy debt offload their stock onto the public markets.

Not only have a large amount of IPOs in recent months been heavily downgraded in initial pricing like Lyft, Pinterest, etc. They continue to drop in value day by day as they’re traded openly. I place a substantial amount of blame on SoftBank and by association, the Saudi Arabians, for unnecessarily inflating this current bubble to disproportionate levels. It will only cause the resultant crash to be all that much more damaging.

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When I became a member at WeWork I thought most people occupying the buildings would be be in a similar situation as mine: freelancers hotdesking so that they could have a decent space to focus and mingle.

But after going through several buildings I realised that the hotdesk offer is only the frontend to their business. Most of the building occupants are sizeable companies that have decided to offload the problems that come with managing an office. Some entire floors can be corporate satellites to big enterprises.

That was my experience and the S-1 might say that the revenue distribution is different but I thought it's worth mentioning.

This is the hidden reality for most co-working spaces, I think

WeWork is a new Sears, leasing floor space for companies to stock and display their smart people.

It's only a recession if it affects macroeconomic indicators right? So a big drop in stocks doesn't really indicate a recession only. Kind of like how the dotcom crash tanked lots of overvalued junk tech companies, but didn't really cause a recession

Confidence is the fundamental currency that determines whether the economy trends towards growth or recession.

And recent events by these privately held companies show a keen lack of confidence in my opinion. That they’ve all chosen to IPO now at the same time gives you a strong indicator to look at. You might disagree with my final determination on what it means exactly, but the fact that it’s happening is undeniable.

As to macroeconomic indicators, I think the majority of them are largely useless as predictors and at best self-fulfilling in nature.

There was a recession around ~2001, triggered deliberately by the Fed to control an overheated economy due to insane stock market valuations.

The recession was pretty minor though.

The dotcom crash absolutely had an impact on macro indicators. The loss of faith in the sector hurt new business creation. Nobody wants to start a business in a recession, and VCs don't want to spend money on "tech plays" when the IPO market is weak and they've been burned too many times on dud investments.

The economic impact can't be quantified by the drop is stock value, it occurs slowly over time, like lower payroll taxes, higher unemployment benefit costs, lower consumption etc.

> They continue to drop in value day by day

Pinterest hasn't had a down day yet.

I agree with you that the increase in late-stage rounds and consequent delayed IPOs is generally a bad thing, but not sure SoftBank is the primary culprit. And certainly during the dotcom days companies went public much sooner but that didn't prevent a bubble and subsequent crash requiring a decade+ of recovery. MSFT didn't get back to their 1999 high until 2016.

> They continue to drop in value day by day as they’re traded openly.

Pinterest has been going up in value day by day.

That’s a lack of perspective playing tricks on you. You see, Pinterest heavily lowballed it’s IPO, setting initial pricing far below its previously held valuation.

Why this was done? Your guess is as good as mine. :)

Pinterest's last pre-ipo valuation was at 12.something billion. It's market cap is currently a bit over 18 billion.

I can’t give you an answer as to why the stock has moved the way it’s moved in the short term of this past week.

What I can tell you concretely though was that Pinterest made the willful decision to lower its initial pricing of its IPO to below its valuation (75 million shares priced between $15-17 for a total valuation of ~$11 billion compared to its original supposed pre-IPO valuation of ~$12 billion). This shows a clear lack of confidence in the company. This is a fact, not an opinion.

Facts need to be backed up with evidence.

>Facts need to be backed up with evidence.

75 million shares priced between $15-17 for a total valuation of ~$11 billion compared to its original supposed pre-IPO valuation of ~$12 billion

Wouldn't this have created a ratchet for their last round's investors?

It can also be a lack of confidence in the valuation.

Pinterest was the first company to IPO after the debacle that was the Lyft IPO. At the time they were unsure if the problem was that investors were sour on IPOs in general or if they were just sour on Lyft, that's why they discounted their valuation.

It's not a lack of perspective at all, he's perfectly correct.

A company that 'low balled' it's IPO simply made a huge mistake and left a ton of money on the table.

IPO pricing is very difficult because it's hard to predict demand and market conditions.

Ideally, you want a flat, and steadily increasing price.

> It will only cause the resultant crash to be all that much more damaging.

But if Lyft and Pinterest are already trading below IPO prices, doesn't that indicate that the public markets are taking the pre-IPO private valuations with a grain of salt?

I'd be much more worried if those stocks skyrocketed, creating a tidal wave of other IPOs with weak fundamentals hoping to cash in because of good timing.

I don't think the market cares one bit about 'pre IPO' valuations.

Investors are looking at the present and mostly the future, not past financial marketing.

Since the tech IPOs so far this year are mostly fine outside of Lyft this doesn’t mean much since the grain of salt isn’t true yet. It’ll probably be true for Uber as well. But like Pinterest and Zoom doing well or exceedingly well so far, I’d expect Slack to do just as well too.

For skyrocketing, Zoom did skyrocket (close to doubling). As did Tradeweb (more than doubled). Tradeweb doesn’t have weak fundamentals though.

Lyft is definitely trading below IPO prices, but Pinterest is definitely not.

No - these companies generally don't have heavy debt.

1) IPO-ing companies represent a very very small chunk of the overall economy.

2) That 'there are IPO's' is a very good signal - it makes investors 'feel' bullish and confident.

3) These companies don't carry a lot of debt. If they were able to, they wouldn't be diluting by raising equity.

4) Uber, Lift, Pinterest, WeWork - they are all mostly viable businesses. Yes, their stock price may be too high in many cases, but they are mostly viable at some level.

5) Don't blame SoftBank. SoftBank is great! It's a ton of 'kind of dumb money' from places with way too much money (Saudis) and nowhere to put it. This means startups can expand far beyond where they normally would and they are handing surpluses to consumers like you and me!

Consider: how is it bad for you for companies to be giving you stuff below market value!? It's possibly bad for other investors, but we consumers win, so long as it doesn't happen broadly and cause a bubble.

All that money we send to Saudi for Oil is coming back in the form of 'cool offices below market value'.

Uber/Lyft have unit profitability problems at current price, but once the market settles down, they can increase prices a bit and it will be ok. (Again, massive stock price not withstanding)

WeWork will work out as long as there isn't a real-estate crash. They are basically leveraged hard on long-term contracts. We don't know the details of them, but if vacancies spike they could be in a world of cash-flow pain.

So yes, the hype is a little much, regular retail investors should probably we wary of holding the bag ...

But these things will only crash if there is a recession and most things look good right now.

FYI even 'bubble conditions' often need something to pop the bubble, like a sudden increase in interest rates, or 'the ground falling out' like in 2007. Right now, there are some signs of froth, and hints of maybe a recession (i.e. at the top of the cycle) but nothing really to say it's going to pop.

Canada could have a major real estate correction, but nobody would care.

China could have a flop, but they can fudge the numbers so well it'll probably be covered up and papered over as a long term slow down. In fact, I think that's what's happening: China has many big sectors which would be in recession, but the numbers are fudged to look like 5% growth.

> All that money we send to Saudi for Oil is coming back in the form of 'cool offices below market value'.

This money has strings attached, strings of political power, just as the Chinese Belt Road initiative. One wrong word or protest when another dozen people is executed by sword or crucified or Muslims sent to concentration camps and poof, there goes your funding, there goes your economy. If there is one foolish thing to do, it is accepting blood money from a potentially hostile foreign power.

Softbank does not come with political strings.

China's 'belt and road' are political, national investments part of a grand strategy.

Softbank is just money.

If you set out to attack MBS/Saudis while taking their money, you can expect trouble, but I significantly doubt you're going to be trouble otherwise.

Whereas Chinas national loans have an entirely different set of objectives.

Softbank/Saudis are just looking to make money, like most other VCs.

Also share concerns about the delayed bubble situation, but... also doesn't the current glut of IPOs drive down valuation for them on its own? There's only so much public demand for new tech company shares.

Yield curve inverted in December, meaning you're right, these companies have been scrambling since then to get their IPO off before the next impending market recession.

And if a large percentage of the buyers are index based funds, that leads to a multiplier effect for the sellers and non-index fund buyers.

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