One of the characteristics of the dotcom bubble in the late ‘90s and early 2000s was the absurd overvaluation of numerous tech companies that weren’t making money and that had no plan to make money. Perhaps the best known example of that was Pets.com, which sought to gain market share by selling pet food and pet supplies at a loss. But selling heavy bags of pet food below cost took a toll on the company, and with no plan for becoming profitable, Pets.com eventually went out of business.
Investors who invested in Pets.com and other tech firms back then often lost much, if not all, of their investment. Even firms who survived the dotcom bubble, such as Amazon, saw their stocks losing 90% of their value. But tech IPOs (initial public offerings) were where the biggest losses were, and overpriced offerings of unprofitable companies became a hallmark of that era.
Fast forward nearly 20 years and we’re seeing much the same thing with many popular tech companies. Investors seem to have forgotten the lessons of the tech bubble and are pouring money into companies like Uber, Lyft, and others with no thought as to the long-term profitability of those companies. But there’s perhaps no other company that typifies the current frenzy than WeWork.
WeWork is a real estate company that provides shared workspace for startups and small businesses. Its services aren’t terribly innovative, yet the company somehow was able to convince investors that it was revolutionary in providing shared office space. The company was valued earlier this year at $47 billion, with all the hype surrounding its proposed IPO. But after the company came under enhanced scrutiny for its continued revenue losses, the resulting negative press meant that the company had to call off the IPO.
One of WeWork’s largest investors, Japanese firm Softbank, engineered a bailout of the company that forced out founder Adam Neumann, providing him with a $1.7 billion golden parachute. Many analysts were astonished at the generous severance package, as Neumann’s mismanagement had left the company with only days worth of cash left to operate.
It remains to be seen whether WeWork will even survive in the coming months, as the company continues to hemorrhage money. And with no real strategy for becoming profitable, WeWork may go down in history as the Pets.com of this current bubble. The question now is, does WeWork’s demise mean that the bubble has peaked, or will there be some bigger bust out there that makes WeWork look like peanuts?
This article was originally posted on Red Tea News.
