Just when you think you’ve seen it all in business – you see something that makes you question everything, again.
Over the last few weeks there have been two stories that, more or less, flew under the radar. Yes, they were mentioned on different main stream financial/business media outlets, yet, that was all they were – mentioned.
In reality (at least via my perspective) these two stories should have been front page, or at the least “top stories” with their underlying implications discussed in earnest. However, as I said – they were barely mentioned, let alone, discussed.
The reason why I take such issue, is this: These two stories are not just illustrative, they are indicative to the deplorable condition of ethics, and ethical responsibility companies, and the people who both work and run them have become. And yes “ethical” is an accurate description, why? Hint: There’s a reason why we use the term “Snake Oil” to categorize unscrupulous business ethics and behavior.
So what are these two stories you’re now asking? Fair question…
The first, once again, represents all that is wrong, rolled into one, once tightly, rolled-up narrative that is unravelling and fraying ever-the-more by the day: Theranos™.
Back in July of 2016 I wrote about what I thought was one of the most unsightly displays of
vomiting selling “snake oil” I had ever witnessed on television. And that’s saying something with all the late night “get rich quick” infomercials I’ve watched during my early career. The following is in response to that vision which appeared on Bloomberg™ in the interview, “DFJ’s Draper: There’s Nothing Wrong With Theranos.”
Here are a few excerpts from that article for context. To wit:
“So why do I bring this point up? Well, I was just sent a recent interview conducted by Bloomberg™ with one of the investors of Theranos™and it fit squarely into something else I’ve been calling out these many years: What’s behind many a “unicorn” is nothing more than a piecing together of anything which might appear believable as to hope and pray Wall Street buys it – literally.
Many of the shenanigans I’ve written or spoken about has been the literal calling out of what I see as pure – unadulterated – bulls##t.”
“This interview is just under 2 minutes. And it is an encyclopedia’s worth of insight for those who really want to understand what’s behind many a old-grey-mare unicorn still hoping for IPO paradise, rather, than the glue factory of M&A. That is, if the cash burn doesn’t force bankruptcy court vulture-ism first.”
To bring those who may not be up to speed on Theranos, as of late, they’ve been relegated to poster child of when “genius founder”, “unicorn worth 10’s of $Billions”, “revolutionary technology”, and “another Stanford drop-out becomes Billionaire” is found out to be nothing more than a – not so genius – euthanized unicorn – with questionable, if not fraudulent technology, and claims. Oh yeah, and a net worth revised by Forbes™ from $Billions – to $Zero. Not forgetting – it’s been only about 7 months since that above “There’s nothing wrong” argument was being touted across the financial/business media.
And as I implied – just when you think you’ve seen everything, just like late night TV – “But wait! There’s more!!!”
In what can only be summarized as a blatant display of illogical chutzpah. The one, and only, disgraced founder of Theranos Elizabeth Holmes who currently has even less credibility than the “snake oil” diagnosis she was dispensing to patients wants to make anyone thinking of suing her, or her company, a deal.
An “out of court cash settlement” you might be asking? Hardly, but the brazenness of the offer is stunning. Ready?
As per the WSJ™: “Theranos Offers Shares For Promise Not To Sue”, to wit:
“Theranos Inc. plans to give additional shares to investors who pledge not to sue the battered blood-testing company or Elizabeth Holmes, its founder and chief executive, people familiar with the matter said.”
Maybe what would be a better offer should be, “Would you like fries with that?” Because at least the “fries” have value. You just can’t make this stuff up.
And as I alluded, just when you think you’ve seen it all? Again, just like late night TV, there’s even more. “So go get your credit card, and get ready for this next special offer, we’ll wait!”
In what I can only describe as “one upping a Theranos offer” (and that’s saying something) was the sudden chorus of “Buy!” ratings, in unison, of Snapchat™.
Suddenly when the stock price seemed to be falling over the proverbial “IPO cliff” and had the appearance than the next
bag holders investors to watch their so-called profits disappear on their “crushing it” $17 buy in, out-of-the=blue came a plethora of analysts with “buy” ratings.
Then, as soon as it was done – it was over. Why?
Morgan Stanley™ (you know, one of the banks that brought you this wonderful IPO to begin with) released a research note as to why Snap™ the company should be worth $28. Then, about a day later, issued a “correction” changing a range of those important metrics (you know, like earnings) that were used to make it such a “buy” revising them down.
What didn’t change in that revision? The $28 price tag. You know what did change? (in my opinion) Who was now going to be the bag holders.
Suddenly there was a myriad of “analysts” that piggybacked onto this research and now claimed “Buy, buy, buy!” who then (remember, this is all conjecture on my part) helped push the narrative so that other “investors” (since this is all hypothetical I’ll say both themselves and any clients they sold earlier) who were clearly underwater could off load their shares at possibly break even prices getting out. What do I use as my “proof” you ask? Fair point, and it’s this…
What metrics suddenly became so “fantastic” that they differed so much from the exhaustive research which one can only conclude “must” have been done only weeks prior when the IPO was getting ready to be launched to the public, that a new research piece from the bank that brought forth this IPO needed to declare?
Remember, this “research” ended up needed to be so hastily released, it needed to be just as hastily corrected.
No, not up as in “we think the earnings should even be better!” No, ooopsy! Those earnings metrics need to be adjusted – as in – adjusted down.
I’m sorry, but did someone just open a can of rancid beans? Because something suddenly sure does smell, doesn’t it?
Again, this is the same bank that supposedly should know everything there is when it comes to earnings and more for this company, and suddenly it needs to get a “research” paper out there where it is known too all that it will more or less be followed in lock step via other firms – to then about a day later have to issue an “Ooopsy?” Are you getting my point here?
So what was the resulting price action of all this you may be asking? As always, fair point, and the “picture” tells the story. To wit:
All I’ll say here is this: If there are going to be bag holders (which I’m confident in my assessment) I’ll just assume they’ll be fewer of their clients funds involved, as in “funds” from the banks that brought this wonderful IPO to market. I believe that’s a fair assessment given what we have to work with.
After all, it’s as good of an assessment as any of those earnings reports they released. And if I’m wrong in my conclusions? Just apply the same standard for accuracy on my assessment as these banks use for theirs. I’m not asking to be held to any higher standard than they do.
It’s just too bad that “standard” makes “snake oil” look legitimate.
© 2017 Mark St.Cyr