Previously profiled IPO deals are now getting a second look following recent developments in each's respective fields
By Matein Khalid: Chief Investment Officer and Partner at Asas Capital
Thanks to the orchestrated bullishness of a dozen Wall Street sell side analysts and the mother of all short covering rallies, Uber has managed to claw back its losses from $38 to its IPO offer price of $45 though the latest management disaster and sacking of Dara’s handpicked COO and marketing lady wunderkind will slam the shares tonight. Uber has also benefited from a short covering rally from when it was 18% underwater below its IPO price and the bullish bid in the stock market on hopes Trump exempts Mexico from tariffs while Fed Chairman Powell would respond to a economic slump with 50 basis points in policy rate cuts. While Uber’s first earnings report beat Street consensus, the ugly fact remains that Uber once again lost $1 billion in the last three months and is on the precipice of a price war with Lyft/revenue sharing dispute with its own drivers. I am skeptical about the bullish cheerleading from banks who were members of the Uber IPO underwriting syndicate. No institutional Mamma admits her baby is born ugly!
Uber is uber-expensive for a firm that trades at 6 times revenue and will lose at least $1 billion every three months in 2019 and 2020. Amazon, an infinitely more attractive global E-commerce/cloud franchise, trades at just above 3 times revenues – and Amazon does not face cutthroat competition from Lyft, Didi, Grab, Yandex Taxi, Ola etc. The political wind is also stacked against Uber as populist/leftist municipal governments in the US, Europe, UK and Latin America will impose higher wages for drivers, as New York City just did. Uber cannot remotely compete with Waymo, Tesla and Apple in the Darwinian economics of driverless cars. I see no reason to change my view that Uber shares will fall to 30 – 32. This is a strategic short.
I instinctively grasped that Beyond Meat would dramatically change the carnivore culture of humanity in the US and become a global sensation for animal lovers/vegans/environmentalists/millennials/Buddhists/Hindus and Jains. The ethical treatment of animals is a cause core to my being so I became a cheerleader for Beyond Meat, though I know nobody in the UAE who was allocated shares in the $240 million IPO in early May. The IPO offer price was $25 and Beyond Meat is up 400% in only a month, making it one of history’s fairytale investments. I profiled the deal in my newspaper/online financial market website columns/LinkedIn just after the IPO. What now?
Beyond Meat surged 38% after CEO Ethan Brown blew away the Street’s best and brightest on his conference call. Even though the firm forecast a mere $210 million in 2019 revenues, Brown spoke about the sheer scale of his growth runway and his innovative Manhattan Beach Project, echoes of Robert Oppenheimer and the Manhattan Project to build the atom bomb that incinerated Hiroshima/Nagasaki, a curious analogy for a company dedicated to save the lives of animals!
Beyond Meat trades at more than $8 billion valuation at 138 as I write, its 38% post earnings rise due to a quintessential short covering squeeze, not fresh accumulation. I would short the shares here for a 105 target or at least not buy this puppy at these nosebleed valuations. This IPO is phantasmagoric, Salvador Dali-surreal, the financial equivalent of Gabriel García Márquez’s magical realism. Net-net, only a masochistic nutcase would buy the Beyond Meat IPO at 138. Beyond Meat at these levels is at the epicenter of a speculative mania, like Dutch tulips in Rembrandt’s Amsterdam, Kuwait’s Souk Al Manakh and the dotcom bubble. This bubble will burst. The shares could easily lose half their value but the business will endure, grow, globalize even if the shares fall to 60, when I promise I will write another column on this IPO!
I had profiled Luckin Coffee Inc. ADR, China’s wannabe Starbucks and predicted $14, well below its $20 IPO offer price, as a credible accumulation zone. After a 50% pop on its first trading session, the Luckin IPO plunged to 13.6 as the financial markets went ballistic once US-China trade talks broke down. Eerily enough, this was just below my accumulation zone. The shares then soared from 14 to 21 and now trade at 19 as I write. An IPO with a 13.71 – 25.90 range in its first months as a public company is not exactly meant for widows, orphans and those without abdominal fortitude. Yet I believe this is a strategic investment theme I can buy for the long term – the quest to convert 1.2 billion Chinese from tea to coffee addicts with cheap, takeaway/carry kiosk-shops across the Middle Kingdom is a noble one, unlike the British Empire’s quest to turn the Manchu Chinese into opium (Indian afeem) addicts in the 1840’s. At current price, the Luckin IPO is a triple bagger for $56 target but the ride will be the mother of all gut churning, margin call provoking rollercoasters. But not guts, no glory – or as I learnt at Penn – no gorii Lol!