Great bargains to be had.
- The US dollar has become the most desired monetary instrument surpassing traditional safe havens like US Treasuries and even Gold meaning that those that have it have greatly increased their bargaining power.
- Furthermore, the now inevitable recession is going to mean that many loss-making businesses will need cash to see them through.
- Here are a few ideas of where and where not to put money if one is brave enough to go bargain hunting.
Airbnb
- Airbnb is already considering its options following the inevitable collapse of its revenues.
- Raising more funds from investors is on the table as is buying up distressed assets.
- Now is a very bad time to raise money unless you have no choice meaning that those with valuable dollars may be able to grab themselves a bargain.
- This is why I would be surprised to see Airbnb come looking for money but beggars can’t be choosers.
- In this event, I would give serious consideration to backing Airbnb as it is the undisputed king of its industry and has very little if any competition.
- This means that its business is likely to come roaring back once the current crisis is over meaning that money put into the company now should fare pretty well in the long-run.
Lime
- Lime is part of a sector I have been extremely cautious on, but I think in this environment, it is worth considering.
- This is because this pandemic is going to put almost all of its competitors out of business meaning that the competitive landscape should be far less brutal once the crisis has passed.
- Lime has seen its revenues fall by 66% or more in many of its markets and the company is getting ready to lay off more of its workers so it can stay afloat.
- In January, Lime had around $50m in cash, which it is almost certainly going to exhaust pretty soon.
- This means it will be coming back to the market for precious dollars.
- I have steered clear of this sector since its inception but given the solitary nature of bikes and e-scooters, this could really gain popularity over ride-hailing once life resumes (see here).
- Lime could well be the last man standing in the sector and could, therefore, be worthy of consideration at the right price of course.
SoftBank and WeWork.
- WeWork is in pretty bad financial shape despite the bailout by SoftBank and I can see it needing more money pretty soon.
- SoftBank’s potential pull-out (see here) from its obligation to buy $3bn of WeWork’s shares indicates two things:
- First, financial pressure: I think that the excuse given by SoftBank for pulling out is pretty feeble and that the real reason for its potential pull-out is the sudden rush for liquidity being observed everywhere.
- SoftBank has a heavy debt load which could become a problem if liquidity continues to be drained from the financial system.
- Second, desperate sellers: The current shareholders of WeWork are clearly now desperate to get out of their positions.
- This indicates that SoftBank is once again overpaying for shares.
- I suspect that if SoftBank can successfully back out of the deal, it will be able to renegotiate at a fraction of what it agreed to pay previously.
- I don’t think that SoftBank is in danger of becoming insolvent as it has some very good assets (eg. Alibaba) but the problem is being able to monetise these assets if it has to.
- In this environment, I think SoftBank remains under heavy pressure and I would not look to put money into this one yet.
