• One of the most anticipated 2020 IPOs is finally in motion
  • Google is taking a shot at traditional college education…
  • 750 million genetically modified mosquitoes are about to be unleashed in Florida…

Dear Reader,

The floodgates have opened…

Up until last week, there hasn’t been a single Silicon Valley technology initial public offering (IPO) the whole year. Last year, Silicon Valley saw 12 IPOs, which was the best year since 2012.

Twelve doesn’t sound like much, but it’s better than nothing.

And the reason for such a limited number of IPOs in a “good” year like last year is because venture capitalists (VC) and private equity firms have been working hard to keep these exciting companies private as long as they can… That allows them to capture the majority of the investment upside while selling overvalued shares to the public when the time is right.

As Bleeding Edge readers know well, the IPO market this year has been dominated by the biotechnology sector. But it was just a matter of time before other companies caught up…

With the S&P 500 and the Nasdaq continuing to hit all-time highs, there is too much money at stake. This is a great market to take companies public… especially high-tech companies.

On Monday and Tuesday this week, 15 companies filed for IPOs. Ten of those were high tech, and just two were in the biotech space.

That was just in two days of filings. We can expect even more filings in the next few weeks.

Between Labor Day (September 7) and late October, I predict that we’ll see more high-tech IPOs than we saw all last year. We’re in for some serious excitement.

And there are a few names that I’m excited about on the list…

But as a reminder, no matter how much we like a high-tech company, its products, the strategy, or the management team, we must understand the valuation.

We should always remember that the VCs, private equity firms, and investment banks are not acting in our best interests. Their goal is to take as much money as they can and leave the scraps for normal investors.

Uber is a perfect example. It went public last year on May 9 at $45 a share.

Where is it today?

It trades around $31 and change, down nearly 30% since its IPO. The company will lose almost $4 billion in negative free cash flow this year, $1.3 billion next year, and $600 million in 2022. It sits on $8.4 billion in debt and isn’t forecast to turn a profit until 2024.

But many retail investors never knew this. For them, Uber is a great service that we use (or have used) on a regular basis. It’s better than the average yellow taxi service that we suffered with for decades. And it provides incredible convenience that is hard to live without.

But as investors, we can’t let that kind of thinking cloud our judgment.

It’s one thing to think a service is great and reasonably priced. But without understanding the numbers behind the business, we are asking for trouble. After all, Wall Street loves to “rip our faces off” by shilling overvalued “darling” stocks to unknowing retail investors.

In fact, some of these “darlings” are downright toxic for your portfolio. Based on my analysis, some of these overvalued tech stocks are set to fall by as much as 90%…

If you’d like to find out if any of these toxic tech stocks are hiding in your portfolio, you can go right here to find out.

Remember… The classic book Where Are the Customers’ Yachts? Or, a Good Hard Look at Wall Street by Fred Schwed was written for a reason.

Let’s make sure we don’t fall for their old tricks.

Airbnb is finally making its move…

And speaking of IPOs, last week Airbnb confidentially filed for an IPO. Finally.

Airbnb originally announced its intentions to go public in 2020 last fall. The company planned to start the IPO process in March or April this year.

But then the COVID-19 pandemic hit… and Airbnb’s IPO was shelved.

The company wisely decided that it wasn’t smart to go public while the entire hotel and travel industry was collapsing.

As I’m sure most readers know, Airbnb is the Uber of the hospitality industry. Its marketplace allows travelers to rent lodging from people who own available living spaces.

It is an incredible marketplace with extremely useful filtering mechanisms for finding a suitable place to stay. This can be anything from entire homes, condos, and apartments to simply a spare bedroom in somebody’s house.

But Airbnb did something unusual with its filing… It put out a press release announcing the “confidential” submission of its IPO filing. That’s unusual.

Companies typically don’t announce their confidential filings. After all, that’s why they are confidential. The first round of a company’s filing allows the company to receive feedback from the Securities and Exchange Commission.

But Airbnb knew that its big news was destined to leak. Whether it was one of its employees or someone at an investment bank, somebody was going to talk about this to friends and family. So Airbnb is simply getting ahead of the rumors here.

And Airbnb’s timing is also interesting. In hindsight, it looks like the company missed its window.

Back in 2017, Airbnb was valued at $31 billion. That made Airbnb more valuable than Hilton, which was worth about $27 billion to start the year. And it put Airbnb on par with Marriott – the world’s largest hotel company. Marriott was valued at $35 billion in the first quarter of this year.

But the difference between Airbnb and Marriott is that Airbnb is a “hotel” company that doesn’t own a single piece of real estate. It’s simply an intermediary between those with property and people looking for a place to stay. That’s striking.

And as we would expect, Airbnb’s valuation collapsed this year.

In fact, it had to take in $2 billion in development capital back in April at an $18 billion valuation. That’s 42% below Airbnb’s peak valuation.

And that begs the question – why go public now? Why not wait for a full recovery first?

I bet that Airbnb’s board is pushing hard for an IPO.

Let’s think about it – Airbnb’s seed round was way back in 2009. And it now has 110 investors spread out across all of its funding rounds.

Many of these investors haven’t had any liquidity in over a decade. They must be getting antsy for an exit, especially with all the uncertainty surrounding COVID-19 right now.

If it were up to me, I would wait until Airbnb’s third-quarter numbers are wrapped up. I would show the investment banks that the dismal Q2 numbers were an aberration and that the company is on a rapid path to recovery.

It would be easy to project a return to pre-pandemic levels within the next two years. That would give Airbnb the best chance to go public at a strong valuation, raising the most capital in the process.

And I bet that the two private equity firms that stepped up to give Airbnb the $2 billion bridge round – Silver Lake Management and Sixth Street Partners – are going to do very well. Airbnb will likely go public at a valuation well above its 2017 $31 billion number.

So we’ll keep a close eye on this one. I expect we’ll see Airbnb’s IPO happen before the November election.

That said, whether Airbnb is a good investment depends solely on its valuation. I suspect Airbnb will likely be overvalued at the time of IPO… just like Uber.

If that’s the case, it will be smart for normal investors to steer clear of Airbnb for now…

The alternative to a four-year degree…

One of my hot topics these days is the transformation of education.

We have talked before about how there is a labor shortage in the tech industry right now. Companies just can’t find enough people with high-tech skills to fill available positions.

This is one of the biggest problems that large technology companies have today. And it’s also one reason the technology sector in the U.S. is so supportive of foreign work VISAs. There simply aren’t enough programmers, coders, and so forth to fill all of the jobs here in the U.S. market.

And Google is trying to do something about it.

It just announced its Google Career Certificates program. These are six-month courses designed to teach people the skills that are in high demand in the technology sector right now.

Upon completing these courses, students receive an official certificate from Google. And many large companies, including Hulu, Intel, PNC Bank, Sprint, and Walmart have already agreed to accept these certificates instead of a four-year degree.

And, of course, this means Google will be able to funnel many skilled potential employees toward its own job openings.

That means students who earn these certificates can get jobs as data analysts, software project managers, user-interface designers, and more. These are positions that pay $50–90k per year. And students can fill them without a college degree.

And here’s the beautiful part – Google charges $49 per month for each course. With each course running for six months, students will pay roughly $300 per certificate. Then they will be eligible for a high-paying tech job. What a great deal.

Now compare that to what’s going on with the university system right now…

As we discussed last week, most universities just pulled a classic bait and switch.

At first, they said that they would open campuses and classrooms to full-time students. Then, after they got the tuition money, universities announced that everything will be virtual. Those schools are closing their campuses for at least the next semester.

Of course, that places parents and students in a tough position. Is it worth paying anywhere from $10–75k a year for online classes?

The obvious answer is no. And that’s especially true when you can shell out just $300 for a technology certificate from Google and then go get a high-paying job with no student loan debt.

So this is a shot across the bow of the traditional university system. Universities are making a terrible mistake with their current policies that will end badly.

We’ll see more and more programs and boot camps like this pop up to teach practical technology and software skills that are in high demand.

As a result, we’ll see fewer students pursuing traditional four-year degrees going forward. Instead, many students will pursue technical training and enter the workforce a lot sooner than most young people do today.

One final note…

This story speaks to the “new world order” I see forming in the wake of COVID-19. The pandemic – and the ensuing lockdowns – have “forced” the world to rethink entire industries.

Whether it’s the nature of work, communication, or education, we’re witnessing a radical change in how our society operates.

The best investments will be found in the companies powering these shifts. Meanwhile, other legacy incumbents will fall by the wayside. I recently put together a presentation to help my readers be on the “right side” of market history. The full story right here.

Genetically modified mosquitos in the Florida Keys…

We’ll wrap up today with an interesting story on the genetically modified organisms (GMO) front.

The Environmental Protection Agency (EPA) just approved an experimental release of 750 million genetically modified mosquitos in the Florida Keys.

Sounds like a disaster waiting to happen, right?

Well, before we jump to conclusions, let’s have a look at the details…

The genetic modification to these mosquitos causes their larvae to die young… before they can reproduce. That way, when these modified mosquitos mate with normal mosquitos, it causes the overall mosquito population to decline dramatically.

This won’t eliminate mosquitos entirely, but it could lead to a 90%+ reduction in the population.

That’s what happened when a similar experiment was tried in Brazil back in 2015. It observed a 95% reduction in the most dangerous breed of mosquitos in the country, which carry dengue fever. It was actually a great success.

Of course, this isn’t foolproof.

Scientists tried the experiment in Brazil again in 2019, but the modification didn’t work. The mosquito offspring lived into adulthood, began to breed, and actually strengthened the local mosquito population.

Certainly not the desired outcome.

So there’s some risk involved, though it’s nothing like creating killer “vampire” mosquitos. The main risk is simply not achieving the original desired outcomes.

And we have seen millions of dollars flow into this research from organizations such as the Gates Foundation because of its interest in dealing with the spread of malaria.

And the intention is noble.

Mosquitos are a major problem for low-lying wet areas around the world. In fact, mosquitos kill more people than any other animal every year because they carry deadly diseases such as malaria and dengue fever.

According to World Atlas, mosquitos killed 830,000 people in 2018. (And that was a sharp drop from the average annual toll, which has been as high as two million.) Of those deaths, 405,000 were caused by malaria. And on average, children under the age of five account for 67% of all malaria deaths.

It’s heartbreaking. For comparison, 826,648 people have died from COVID-19, almost all of which had underlying conditions, and almost none of which have been children.

So we’ll watch the upcoming Florida release closely.

If successful, this approach has the potential to save hundreds of thousands of lives each year around the world.

And it is far better for the environment than spraying massive amounts of insecticide in hopes of killing mosquitos off but poisoning other parts of the natural ecosystem at the same time.

Regards,

Jeff Brown
Editor, The Bleeding Edge

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