SoftBank bails out Whee (for now); Enrique Abeyta on the bursting of the unicorn bubble; Elite M.B.A. Programs Report Steep Drop in Applications
1) With SoftBank injecting new capital and pushing out co-founder Adam Neumann (see articles in yesterday's New York Times and Wall Street Journal), I suspect that The "Whee" Company will now disappear from our radar screens for a while. But before it does, I wanted to share a few thoughts...
What a total disgrace that Neumann, a true clown of epic proportions, is walking away with $1.7 billion. That said, who cares? Whee never went public (and never will), so the losses are being borne mostly by SoftBank, which is as it should be...
Speaking of SoftBank, its pain is only just beginning, as it has poured good money after bad merely to rearrange the deck chairs on the Titanic. This is a terrible business with out-of-control costs and nearly $50 billion in lease obligations. The first four of my five predictions about this company have come true so far, and I am more confident than ever that my final one will as well: None of this will make any difference, and the company will file for bankruptcy a year from now.
This reminds me so much of buyout firm TPG's ill-fated investment in Washington Mutual (WaMu) in the early days of the housing crisis in April 2008. The deal, which boosted WaMu's stock by more than 30%, was led by acclaimed billionaire investor David Bonderman. Here's a New York Times article about it: TPG Leads $7 Billion WaMu Investment. Just substitute "SoftBank" for "TPG," "Masayoshi Son" for "David Bonderman," and "WeWork" for "WaMu" and the stories are eerily similar...
Less than five months later, regulators seized WaMu and investors lost every penny. At the time, it was the single worst private-equity deal in history. Here are two articles about it:
• WaMu Fall Crushes TPG (WSJ)
• TPG's WaMu Loss Is a Bitter Pill for Private Equity (NYT)
2) Whee's implosion is the leading edge of the ongoing bursting of the unicorn bubble. Here's my colleague Enrique Abeyta with some thoughts on this:
I really enjoyed this article in The Atlantic, The Not-Com Bubble is Popping.
There is a lot of great stuff in it, including the line: "In the dot-com bubble, public investors got hosed. Today, it's public investors that are doing the hosing."
It is funny that he references the day that Netscape went public – August 9, 1995 – as that was my first day working full-time on Wall Street! I remember that day like it was yesterday... Everyone on the trading floor (not just equities, but even the bond floor) was buzzing about this stock that skyrocketed from $28 to $75 immediately, especially since the company was losing a lot of money at the time. No one had seen anything like it...
Now that I'm a grizzled veteran, I'm often asked, "What did it look like during the technology bubble?" or "What did it look like during the mortgage bubble?"
During those periods, I remember the giddy excitement of people who had gotten in early and made money – at least, on paper. During Internet 1.0, these were my friends who were working at dot-coms in New York City. Sadly, few of them were clever enough to cash in before their paper fortunes were vaporized. During the mortgage bubble, it was friends buying houses and condos in Florida and Arizona and flipping them before they were ever even built.
For this (mini) unicorn bubble, I think the sign of a top was public stock mutual funds coming in full bore. (The story is captured well in this recently Wall Street Journal article, Mutual Funds' Embrace of High-Profile Unicorns Backfires.)
As I saw this happening in recent years, I remember thinking to myself, "Wow, there are some smart folks at these mutual funds but for them to be leading private-equity rounds seems like a stretch!"
Well, I think when we look back at the unicorn bubble, we will remember things like these mutual funds and WeWork and say, "That was what it looked like..."
Two last points. First, The Atlantic article argues – correctly, I believe – that the bursting of the unicorn bubble is likely to be much less impactful on the economy than the bursting of the prior two bubbles.
And second, there is still plenty of money to be made on the short side in stocks like Slack Technologies (WORK) and Uber (UBER).
3) I was surprised to see such a large decline... Elite MBA Programs Report Steep Drop in Applications. It's good news for anyone applying to these programs (like maybe my daughters someday!) Excerpt:
Applications to some of America's most elite business schools fell at a steeper rate this year, as universities struggled to attract international students amid changes to immigration policies and political tensions between the U.S. and China.
The declines affected some of the nation's top-rated programs, with Harvard University, Stanford University and the Massachusetts Institute of Technology, among others, all reporting larger year-over-year drops in business-school applications. Some, such as Dartmouth College's Tuck School of Business, posted double-digit percentage declines.
Overall, applications to American MBA programs fell for the fifth straight year, according to new data from the nonprofit Graduate Management Admission Council, an association of business schools that administers the GMAT admissions test. In the latest academic cycle ended this spring, U.S. business schools received 135,096 applications for programs including the traditional master of business administration degree, down 9.1% from the prior year, according to an annual survey. Last year applications for U.S. business programs were down 7%.
The MBA was once considered de rigueur for anyone wanting to join the management ranks of U.S. companies, especially for international students, offering a pathway to leadership and a bigger payday. But education experts say shifts in U.S. immigration policy, trade and political tensions with China, as well as the growing attractiveness of technology-industry jobs that don't require MBA degrees, have recently dampened foreign students' enthusiasm for business school.
Meanwhile, a hot domestic job market has cooled the interest of many Americans in the traditional two-year MBA path. Millennials, many of whom are saddled with debt loads from their undergraduate degrees, have proved more reluctant than previous generations to pursue the pricey degree.
Best regards,
Whitney