Special Briefing
IN ASSOCIATION WITH THE PRESIDENTIAL DAILY BRIEF

Going Public

The Unicorn Dossier

This is an OZY Special Briefing, an extension of the Presidential Daily Brief. The Special Briefing tells you what you need to know about an important issue, individual or story that is making news. Each one serves up an interesting selection of facts, opinions, images and videos in order to catch you up and vault you ahead.

WHAT TO KNOW

What’s happening? Lyft was first out the gate with a $24 billion valuation. Uber, which could be worth upwards of $100 billion, is coming within weeks. So are Pinterest, Slack, WeWork and more. With all these prominent tech startups going public, 2019 is shaping up to the Year of the IPO — with an estimated $200 billion on the line.

Why does it matter? These financial coming-out parties have broad implications for everything from the stock and housing markets to how some of the most important companies in our lives will be managed. Yet, while public markets invite new scrutiny, and cede sway over a company’s future to its outside shareholders, these IPOs aren’t always as “public” as the term suggests.

In fact, some firms seem to have learned from brethren like Apple and Google parent company Alphabet, which allowed top executives to hold “supershares” to out-vote outsiders and keep decision-making as encrypted as an iPhone. For instance, Lyft’s two co-founders own 7 percent of the stock — but a near-majority of shareholder votes. Summed up by one expert, the so-called founder-knows-best ethos holds: “If you want to buy shares, then follow my rules.”

HOW TO THINK ABOUT IT

Year of the unicorn. These mysterious, privately held beasts have all reached $1 billion in valuation, and as of this week, there are a record 147 in the United States (hardly an endangered species). When Uber lists on the New York Stock Exchange in May, it’ll mark the largest IPO since Chinese e-commerce firm Alibaba went public in 2014 with a valuation of around $169 billion. For its part, Slack has opted for an unconventional direct listing — meaning it won’t raise any money by selling new shares or set a price in advance — following Spotify’s lead from last year.

Bursting the bubble. Collectively, this parade of unicorns could raise some $100 billion, more than during the dot-com bubble of two decades ago. So will 2019 serve up a replay? Boosters point to the fact that the likes of Uber, Pinterest and Airbnb are household names that have proven they can grow and provide valuable services. Yet moving from the mythical unicorn to a real-world giant is difficult when just turning a profit remains challenging. Both Uber and Lyft are losing money — and both have warned, as they were legally obliged to do, that they may never become profitable.

Great expectations. That’s partly why these firms aren’t exactly all smiles as they head into their long-hyped IPOs. Having lost more than $3 billion last year from operations, Uber expects such costs to “increase significantly.” It also says its bottom line could suffer if drivers attain the legal status of employees, rather than app users who share rides with strangers. Meanwhile, in a bid to play it safe to attract more investors, Pinterest pegged its average value nearly $2 billion lower than during its previous valuation round two years ago. And Lyft is already experiencing the tribulations of public life: Its stock slid 11 percent in the first 10 days after the IPO.

Location, Location, Location. Because these IPOs are largely concentrated in San Francisco, that’s prompted fears of newly minted multimillionaires driving up already sky-high housing prices. “The moment these IPOs take off,” one agent told The Wall Street Journal, “that’s when we expect to start getting bites.” Meanwhile, dumpster-diving outside the homes of the city’s super-rich has reportedly become a form of subsistence living. But some believe fears might be overblown, given that the number of nouveau riche San Franciscans will still be relatively small and they are unlikely to all buy expensive property.

WHAT TO READ

Tech IPOs Aren’t the Milestones They Once Were by Shira Ovide in Bloomberg
“They don’t need IPOs to fund themselves or to reward investors. In fact, as the money going into young firms has been turbocharged, IPOs are no longer the outlandish investor windfalls of popular imagination.”

The 2019 IPO Frenzy Is Different From 1999. Really by Dana Cimilluca in The Wall Street Journal
“For years, tech startups have been awash in private funding and could afford to take their time going public. Many founders took advantage of that luxury to build their businesses away from the prying eyes of public investors.”

WHAT TO WATCH

Five Ways Uber Is Preparing for Its IPO

“Controlling expenses has been a struggle. The company’s had to provide incentive payments to drivers to keep them on the road longer and away from rivals such as Lyft.”

Why Lyft Is Losing Money

“The more money they make [and] the more people they get on their platform, the more money they lose. They have to spend money to market in different cities, to get drivers, to get customers, and maybe take customers away from Uber.”

WHAT TO SAY AT THE WATERCOOLER

Smooth exit. Although ditching foreign markets might have been a bad look for Uber, it is still making a windfall without the brand name: Uber’s strategic departures from China, Russia and Southeast Asia — where it sold its assets to rival local firms in exchange for partial ownership — earned the company $12.5 billion on paper, according to its pre-IPO disclosures.