Hatch Weekly: We will, we will, WeWork

WeWork has some work to do

The We Company has just released its IPO prospectus, and many are saying it’s a load of, um, obfuscation. One of the most hotly anticipated IPOs this year, WeWork is privately valued at almost 50 billion dollars. Interestingly, it’s positioning itself as a tech company, which really ticked off the trolls of Twitter, to the point of them labeling the company “WeWTF”. Insert LOLs here.

What the heck is WeWork?

WeWork’s goal is to solve a painful problem: the high cost and administration of real estate in large cities around the world. So, if you’re a business and you want your staff to co-locate in a space, you currently have two options: you can rent a space, or you can buy one. It can be expensive, time consuming, and inflexible. WeWork solves for location, convenience, and community, but according to some analysts, the business case and economics are questionable. A big part of their business model is taking long-term leases and leasing them out to other businesses on shorter-term leases which results in a balance sheet of ~$22 billion in long term liabilities and $2.5 billion in annualised revenues. Its IPO filing last Wednesday acknowledged huge losses alongside rapid revenue growth.

But wait there’s more

When a founder sells a significant number of shares of his own business ahead of an IPO, it sends mixed signals. Investors typically avoid buying into a business the founder is trying to get out of. Then there’s the whole thing about him leasing buildings he owns to the company he founded. As for the trademark, let’s save that for another day. Adam, what are you up? Many are questioning: is WeWork is a visionary company worth investing in, or an overvalued startup?

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Millennials: Turn your meh into money

Millennials represent a huge amount of untapped investment potential, however their attitudes towards money and investing differ massively from previous generations. Skeptical of their parents’ financial institutions and strategies, they’ve lived through the GFC and are hesitant to start investing.

The recession generation

The millennial generation is known for being broke and living at home. But, it’s not their fault. For adults between the ages of 22 and 38, the last recession hit home. Recessions aren’t good for anybody no matter your age, but the next one, when it happens, will hit these young guns particularly hard. Why? Kids of the 1980s and 1990s have had a financially catastrophic demand on their post-recession earnings: we’re talking trillions of dollars of educational debt. This cocktail of higher student-loan balances and rising real estate prices has led to them getting shut out of the housing market.

Get some skin in the game

Too many millennials are sitting on the investing sidelines, even when they know they should get started. The majority don’t fear the act of investing, they’re simply afraid of losing what little money they have. Yes, all investments come with risk, but letting too much money sit in cash can be risky in itself (hello inflation). So, if you’re a millennial and not sure where to dip your toe in, then exchange-traded funds (ETFs) might be the place to start. When you invest in ETFs, you immediately invest in a basket of companies rather than just trying to pick one company. This can be an easy way to get started and can offer instant diversification too. Here’s a few of our trending ETFs to give you an of what other Hatch investors are doing:

  • S&P 500 Vanguard ETF (VOO)

  • U.S. Total Stock Market Index Vanguard (VTI)

  • Invesco Powershares QQQ (QQQ)

  • Gold Shares SPDR (GLD)

  • Vanguard Information Technology ETF (VGT)

There’s a lot to learn from millenials

It’s not all doom and gloom when it comes to millennials and investing, in fact, in many ways they’re changing the investment game through their differing investment habits and influence on the rise of self-directed investing.

Johnson & Johnson ruling

In a surprising twist, Johnson & Johnson (JNJ) shares rose 5.4% after a judge in Oklahoma ordered the company to pay $572 million to the state. Why the celebration? Investors were expecting to pay $17.5 billion in reimbursements for tax dollars spent sorting out an epidemic of addiction and overdoses of opioid-based medications. They’re appealing the ruling.

Pushers getting pushed to pay out

This could set a new benchmark for pharmaceutical executives facing thousands of similar lawsuits from cities, counties, and states across the US. Several big pharma companies have reached settlements in some cases, but pundits are predicting that opioid makers and distributors might have to pay the piper a total of $100 billion to make good on the crisis they started by flooding the USA with opioids. Other opioid related shares saw gains thanks to the news: Teva Pharmaceutical Industries Ltd.(TEVA) gained 10%, Endo International PLC (ENDP) went up 16%, and even Cardinal Health Inc.(CAH) shot up 2.3%. But they aren’t celebrating yet: more and more pharma companies could be held liable for creating a catastrophe with their drug marketing and distribution. Teva has already settled for $85 million.

Not so family-friendly anymore?

J&J and other opioid makers are being accused of overstating their painkillers’ benefits and understating their risks in targeted marketing campaigns that saw doctors prescribe the drugs for health problems that weren’t approved by regulators. Thanks to this, opioids were involved in 400,000 overdose deaths from 1999 to 2017. During that same period, more than 4,000 Oklahomans died from opioid abuse and thousands became addicted. Here’s a sobering note to end on: the $572 million bill will only pay for a year’s worth of services needed to combat the epidemic in Oklahoma.

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