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Has The US Floatation Bubble Burst?

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Has The US Flotation Bubble Burst?
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One of the most awaited listings of the year by the stock market-the inauguration of a firm WeWork that was going to provide property on rent for the offices- is now doubtful.

This state of indecision is forming because of the pressure that the main external investor of the company Softbank Japan to cancel the U.S floatation plans of the venture during the recession or dropping valuation.

At the time of agreement with the Japanese bank, the value of the company had the value of $47bn (£38bn) but according to the recent reports, the value of the company to be floated is less than $20bn.

There are many companies in the market that seem to be going into loss; a few examples of such companies are Uber, Lyft, and Slack. All these companies have been struggling to maintain their valuation.

The companies were a part of a group of companies that were already much-hyped “unicorns”- they were private companies that worth $1bn.

All three of the companies introduced their initial offerings for the public this year in a glorious manner. But only one of the companies out of three named Slack is still able to trade near the price it is listed with the stock market but both Uber and Lyft are still trading at much lower rates than what they listed.

Having the support of the project capital firms these companies are permitted to grow while enduring the losses that have been occurring; the firms have faced a lot of criticism from the day they listed their shares.

Is the US floatation bubble about to burst?

The uncertainty of Brexit and the ongoing trade war between the U.S.A and China has put the economic growth of the whole world in danger.

Some of the economists have an argument that the tighter is the economic condition of the country the more should be the chances of people cutting down on their expenses especially on cab rides and apps used at workplaces. The people should try to spend less on hiring the desk space for the offices.

The founder of Arete Research and technology analyst Richard Kramer said the three companies under discussion are very different types of businesses with only one thing common and that is they are running into loss and expecting to sustain on unrealistically high growth rate in future.

He further said that at this point in time, the new Initial Public Offerings completely depend upon the increase in sales to turn the first profit.

Mr. Richard Kramer said that both Uber and Lyft were used on an average of 30 times per year per person which was not enough for the companies to make a profit. He told the media that both the companies are running into heavy losses.

Mr. Richard Kramer said that to reach the level that is needed to make a profit means 50-100 rides per active user per annum and it requires a much larger part of what are optional purchases made by the customers. Both Uber and Lyft need more and more people to ride them, but during a tighter US economy, it is next to impossible to get this growth.

Opinions

He said that the markets of today ask a question about these companies whether they are “recession-proof”.

WeWork is a company that is led by Adam Neumann, the company offers office space with a number of perks for the ventures that are at their initial stages. According to some of the critics, WeWork must sign long-term agreements with landlords and at the same time small-term contract with the renters making it week to downturns, in case it’s custom dries up.

Since 2016 the company suffered from losses of $4bn, it has been wasting its capital in the form of losses through the revenues of the firm double every year. The company has already shared a fact when filing for its IPO that it might slow down its process of expansion spectacularly if it was the need of time to make a profit.

Last year WeWork lost almost $1.9bn in spite of its revenues of $1.8bn. According to the records of WeWork, the company has lost an additional $904m having made the revenues of $1.54 bn in the first six months of 2019.

Till now, the company has not been able to earn a profit, but after its start in 2010, it has enormously grown and has established at 528 locations in 111 cities of 29 different countries.

Long journey to success

If it is about Slack Mr. Richard Kramer said that app developed for workplace communication was in a very non-appealing position to compete with a similar app that Microsoft offers.

He said buying Microsoft Software for your U.S. business means that you are lucky enough to get the Teams Built-in.

Microsoft Teams is an integrated communication app that has many features like workplace chat, file storage, video meetings and integration of different applications.

According to Mr. Richard Kramer Teams may lack some of the features that make Slack so popular but still buying Slack is the second-best choice that the purchasers can make. Slack is more popular with start-up businesses.

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