Why Hot I.P.O.s Aren’t Always a Golden Ticket for Investors: Live Business Updates

Brian Chesky, Airbnb’s co-founder, in 2018. It’s usually not regular people, employees or even pre-I.P.O. investors who get a windfall from initial public offerings.
Credit…Eric Risberg/Associated Press

A dirty secret of initial public offerings is that even the coolest ones may make only a handful of people rich — and it may not be regular people, employees or even fancy pre-I.P.O. investors who get a windfall.

DoorDash and Airbnb are expected to have spectacular first sales on public stock exchanges this week and start trading at far higher levels than anticipated even a few weeks ago.

But buying stock in relatively young and unproven companies — which usually describes technology companies selling their stock to the public for the first time — is often a coin-toss bet. Even the professional investors who buy stock in hot companies before they go public don’t always get rich, unless they throw their money around early and get lucky. Companies you might have heard of like Uber, Lyft, Snapchat and Slack were at best meh I.P.O. investments.

Look at Airbnb. Among the investors who got a special chance to buy Airbnb stock nearly four years ago, each $10,000 of stock they bought will be worth about $11,500 if Airbnb starts selling its shares to the public for $60 each. Nice!

But if your aunt had invested $10,000 nearly four years ago in a simple fund that mirrored the ups and downs of the S&P 500 stock index, she would now have $15,600. Even nicer.

The pandemic hurt business for Uber and Lyft, but their stocks were losers before then. Uber’s stock price has bounced back and is now up 30 percent since the spring, and still anyone who bought Uber shares in its 2019 I.P.O. — and even the professional investors who bought its stock in the four years before that — would have made far more money buying an index fund. Uber employees who were hired before the I.P.O. and were paid partly in stock also would have been better off getting paid in an index fund.

People who bought Snapchat’s stock in its 2017 initial public offering had to wait more than three years to not lose money on their bet. Slack just sold itself at a share price not much higher than its first public stock sale last year.

These are cherry-picked examples. There are companies whose stock prices have soared since their I.P.O.s and made people rich — Zoom Video is a prominent example in technology. And the people who have already bet on the restaurant delivery app DoorDash stand to make a big profit when the company goes public this week.

Will Airbnb be a winning I.P.O.? It depends. It definitely will be for the venture capital firm Sequoia, which bet on Airbnb early. And it’s certainly faring better than people expected when travel froze early this year. But no one can confidently predict whether its share price will shoot to the moon like Zoom’s has since its 2019 I.P.O. or will plunge as Lyft’s did after it went public.

That’s the lesson. Cool companies don’t always make good investments. The people screaming on Robinhood about their splurge on a hot I.P.O. may not know what they’re talking about.

Goldman Sachs has reached a deal to buy out the minority partner in its Chinese securities joint venture, which could make it the first global bank to assume full ownership of its securities business in mainland China since the Communist Party took control of foreign-owned enterprises in the country in the 1950s.

In a memo to employees on Tuesday, the Wall Street bank said it had reached a definitive agreement to buy a 49 percent stake in Goldman Sachs Gao Hua still held by its local partner, Beijing Gao Hua Securities. Goldman Sachs did not disclose a price for the transaction.

The deal follows a pledge by Chinese leaders in 2017, amid worsening trade relations with the United States, to relax or remove limits on foreign bank ownership. The move was part of an unsuccessful effort by China to enlist Wall Street in heading off President Trump’s plans to impose tariffs on Chinese goods.

Goldman Sachs could be the first to take full control of its China securities business, depending on regulatory approval and how quickly the deal is completed.

JP Morgan Chase already has full ownership of its futures business in China, but still has a joint venture for other activities on the mainland. Other investment banks, like JP Morgan Chase, Morgan Stanley, UBS and Nomura, are in various stages of raising their stakes in their Chinese securities operations.

Commercial banks, by contrast, have avoided raising their stakes in commercial banking operations in mainland China above 25 percent. Doing so would subject those operations to further global banking regulations.

Goldman Sachs had announced on March 27 that it had obtained regulatory approval to raise its stake in Goldman Sachs Gao Hua from 33 percent to 51 percent. Tuesday’s memo was reported earlier by The Wall Street Journal.

With movie theaters largely shut across the United States, traditional movie companies like Warner Bros. are being forced to evolve.
Credit…Aaron P/Bauer-Griffin, via Getty

Last week, when Jason Kilar, WarnerMedia’s chief executive, announced that 17 more Warner Bros. movies would each roll out on HBO Max and in theaters simultaneously. To prevent the news of the 17-movie shift from leaking (and to make the move speedily rather than get mired in the expected blowback), WarnerMedia kept the major agencies and talent management companies in the dark until roughly 90 minutes before issuing a news release, report Brooks Barnes and Nicole Sperling.

The surprise move left agencies on a war footing. Representatives for major Warner Bros. Talk of a Warner Bros. boycott began circulating inside the Directors Guild of America. A partner at one talent agency spent part of the weekend meeting with litigators. Some people started to angrily refer to the studio as Former Bros.

The 97-year-old studio, the ancestral home of Humphrey Bogart (“Casablanca”) and Bette Davis (“Now, Voyager”), suddenly finds itself at the uncomfortable center of a Hollywood that is changing at light speed. Even before the pandemic, streaming services like Netflix, Apple TV+ and Amazon Prime Video were upending how movies get seen and their creators are compensated. Now, with theaters struggling because of the coronavirus and the public largely stuck at home, even traditional film companies are being forced to evolve.

It’s not that all actors and directors are against streaming. Plenty of big names are making movies for Netflix. But last week’s move by Warner Bros. raised fundamental financial questions. If old-line studios are no longer trying to maximize the box office for each film but instead shifting to a hybrid model where success is judged partly by ticket sales and partly by the number of streaming subscriptions sold, what does that mean for talent pay packages?

How studios compensate A-list actors, directors, writers and producers is complicated, with contracts negotiated film by film and person by person. But it boils down to two checks. One is guaranteed (a large upfront fee) and one is a gamble: a portion of ticket sales after the studio has recouped its costs.

If a film flops, the second payday never comes. If a film is a hit, as is often the case with superheroes and other fantasy stories, the “back end” pay can add up to wheelbarrows full of cash.

A garage at the Aurora office in Palo Alto, Calif.
Credit…Jason Henry for The New York Times

Uber, which spent hundreds of millions of dollars on a self-driving car project that executives once believed was a key to becoming profitable, is handing the autonomous vehicle effort over to a Silicon Valley start-up, the companies said on Monday.

Uber will also invest $400 million in the start-up, called Aurora, so it is essentially paying the company to take over the autonomous car operation, which had become a financial and legal headache. Uber is likely to license whatever technology Aurora manages to create.

The deal amounts to a fire-sale end to a high-profile but star-crossed effort to replace Uber’s human drivers with machines that could drive on their own. It is also indicative of the challenges facing other autonomous vehicle projects, which have received billions in investments from Silicon Valley and automakers but have not produced the fleets of robotic vehicles some thought would be on the streets by now.

Aurora’s chief executive, Chris Urmson, said Aurora’s first product will not be a robot taxi that could help with Uber’s ride-hailing business. Instead, it will likely be a self-driving truck, which Mr. Urmson believes has a better chance of success in the near term because long-haul truck driving on highways is more predictable and does not involve passengers.

In a statement, the Uber chief executive, Dara Khosrowshahi, said he was looking forward to bringing Aurora technology to market “in the years ahead.” Uber declined to comment further on the agreement.

  • Rashida Jones, a senior vice president for news at MSNBC and NBC News, will become the first Black woman to take charge of a major television news network. Her promotion, announced by Cesar Conde, the chairman of NBCUniversal News Group, is another big shake-up in the network’s management ranks. She will succeed Phil Griffin, the MSNBC president whose left-leaning shows yielded big ratings in the Trump years and minted media brands like “The Rachel Maddow Show” and “Morning Joe,” will depart on Feb. 1 after a 12-year tenure, the network said on Monday.

  • The Japanese advertising giant Dentsu Group plans to cut roughly 6,000 jobs as it grapples with the effects of the coronavirus pandemic. In a securities filing in Tokyo on Monday, Dentsu laid out details of its restructuring strategy, which will cost 88 billion yen (about $850 million) to carry out over two years and includes trimming its 48,000-person international work force by 12.5 percent. The timeline will vary by location, the company said.

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