What Lessons Should Investors Take From the WeWork Debacle?

The longest bull market in history is about to enter its 11th year.

During that time, the red-hot tech IPO has become a frequent phenomenon. Facebook. Twitter. Snapchat. Alibaba. Uber. These companies and more have all made their debut as publicly-traded companies in the last decade.

 

Sometimes these IPOs work out for investors. That is certainly the case with Facebook, which closed its first-ever day of trading in 2012 at just under $40 per share. As of the market close on November 7, Facebook shares were priced at $191.

 

However, not all tech IPOs have similar success. In fact, sometimes they crash and burn on their first day of trading. This year, one of the most anticipated tech IPOs – WeWork – fell apart before the stock even made it to the trading floor.

 

The WeWork IPO was expected to be one of the biggest in years, with some analysts projecting a valuation of nearly $50 billion. However, the company’s financial reports tipped investors off to numerous problems in the company, including outrageous spending, problematic corporate governance, and unsustainable leases that gave the company no clear path to profitability.

 

WeWork never made it to the stock exchange. The company pulled its IPO. The founder and CEO Adam Neumann was forced out of the company. And the real estate startup’s new leaders were forced to take a bailout package that eliminated nearly $40 billion in value. Layoffs are expected and the company could end up in bankruptcy.

Are Tech IPOs Right for Your Client?

 

The silver lining in WeWork’s IPO debacle is that the IPO itself never happened. However, the same can’t be said for other high-profile IPOs. Uber debuted at more than $40 per share in May of this year. It recently closed at nearly $27 per share. Since going public in 2017, Snapchat has lost nearly half its value. Pinterest is down nearly 20% since its April IPO.

 

It’s easy for investors to get caught up in the hype surrounding a tech IPO, especially if it’s for an app or company that they frequently use. They often want to get in on the ground floor of the next Facebook or Google. However, IPOs carry an inherent level of risk. Especially in the tech industry, most IPO companies are years away from profitability.

 

If your clients want to dabble in the tech industry or invest in the next big IPO, use it as an opportunity to review their strategy. This could be the perfect time to evaluate their risk tolerance and possible protection tools for their entire portfolio.

 

Perhaps if they insist on participating in volatile tech stocks, they should reduce risk exposure in other areas of their allocation. CreativeOne’s sales team can help you find the right strategies for your clients.

 

Contact CreativeOne today at 800.992.2642 and let’s start the conversation.