B (4:33)

That's right, I drove a city bus. I did maintenance on rental cabins. I managed a bowling alley. And each one of these jobs left some money sitting in a different 401k. And those old accounts add up. I'm excited to roll them over into one place.

A (4:45)

While for a limited time, public users can earn an uncapped 1% match on all IRA transfers and rollovers, you can also earn a 1% match on your annual IRA contributions. That's a 1% match. Plus, with a self directed IRA on public, users can access thousands of stocks, ETFs and bonds to align their investing style with their retirement goals. To get started at public.com brewmarkets that's public.com BrewMarkets paid for by Public Investing. Full Disclosure in Podcast Description Now Rent the Runway an entrepreneurial story I admire, but a stock that I simply do not. Founded in 2009 as a clothing and accessories rental service, this business gave customers access to desirable fashion for special occasions and increasingly workwear without having to spend a lot of money on one time items. Now, for those who haven't used it, Rent the Runway has a subscription model that allows users to rent multiple items of clothing per month. Literally a closet in the cloud, which is how founder and CEO Jennifer Hyman has described it. Now, this is one I remember excitedly seeing come to Life, John, in 2009. And you've got to remember that this was in the financial crisis, this was in the recess session, and this was the moment in time when we had the birth of the sharing economy, right. Rideshare, we saw Uber really blossoming, you know, coming to life at this point. And there. And shortly afterwards, we saw Airbnb, the home sharing, the property sharing, and then we saw Rent the Runway, which was fast and sharing. So what's gone on?

B (6:20)

Well, here's a little story about the company's IPO. They IPO'd in October 2021 under the public ticker Rent. And the company was part of a wave of trendy retailer IPOs like Warby Parker and Allbirds. Rent the Runway at the Time had about 110,000 subscribers, and the IPO was priced at $21 a share for a valuation of about 1.3 billion. But within weeks, the stock dropped below $10, and by the end of 2023, it was trading under $2 a share. And I chose that period because it stops just before a stock split that made the numbers a bit noisy, but it paints the picture that the stock dropped like a stone. And that's true today, even after some financial engineering. And here's why. That first year, 2021 and revenue was about $160 million, but the net loss was 171. Then 2022, they lost $200 million. 2023, they lose $138 million. And the losses continued. They just yesterday reported their quarterly earnings and Rent the Runway reported $26 million loss for the quarter.

A (7:20)

So, John, you're exactly right. We've seen these net losses over time. Now, this year, it looked as though Rent the Runway was making some progress towards narrowing these losses. But this most recent quarter, again, the losses were bigger than expected. And I've got to hand it to the CEO and the founding team here who've stayed in place. They've really come close to the precipice multiple times of looking like they were going to run out of cash or actually be kicked off the stock exchange. And so, just to go back to April of last year, as you mentioned, Rent the Runway did a stock split. We can discuss in another episode what that means technically, but essentially it meant that the share price dropped so low that it was at risk of being delisted from the nasdaq. The other thing that this business also did last year is extend the maturity of the debt, which is a fancy way of saying it was pretty clear that when it was time to repay the loans, the business was not going to have enough cash. Right. It's been running losses, yet it's had debt. And so it worked with its lenders to extend the maturity to basically kick the can on when that debt would come due. And then just last month, the company announced something that I think was very cheekily named, which was a growth recapitalization. A growth recapitalization plan. I can't even get the words out. It's so cheeky. So here's what happened last month. So Rent the Runway worked with its lenders and its private investors, and what happened was $260 million of debt that was sitting on this business was converted into equity. So this is basically what you should hear as a. As a public shareholder. These investors now own more than 80% of the equity of this business as a result of this recapitalization, which means if you're a public shareholder, you've been diluted down. You now own a much lower proportion of this company than you used to. Now, what are the benefits of this, John? Well, first of all, it gives the company some breathing room. So you've got lower interest, expense. Plus, the investors cobble together $20 million and put that cash into Rent the Runway to give it some cash to go and get behind some growth again. Now, there's two ways in which the CEO has said that she wants the business to grow. Number one is to get more inventory. And right, because more inventory is more choice. It's the reason that I would go and try and find fresh new things.

B (9:32)

To wear right now, the beginning of the year, they announced that they're going to double their inventory and add hundreds of new pieces weekly. And they said that our customers love the newness.

A (9:40)

Of course they love the newness. So in order to do that, if you go back in time, Rent the Runway would get that newness and more inventory by shelling out more cash. Right. To go and buy those clothes. Now, what is the new strategy is the CEO wants to go out to fashion brands and Say partner with us, give us your clothing for no cash, and in return we will give you a cut of the rental revenue. Right. But that assumes that there is going to be more rental revenue to go.

B (10:08)

Around, which hasn't been the case.

A (10:10)

Well, the growth has been, you know, sort of mixed. And there are two issues around this required increase in rental revenue. Number one, I think that this means that higher prices are going to be likely. The company only recently, I think we saw, had a price increase for the.

B (10:24)

First time in three years.

A (10:25)

Three years, right. And so there's a question around. Did they not increase their prices because they knew their subscribers wouldn't accept it? Is this most recent one mean it's going to be harder to do it in future? So there's a real pricing question. The second thing is to get more rental revenue, the business is going to just need more subscribers. And here's the crux of this. To get more subscribers and to get more growth, the business needs to spend marketing dollars. And when you take a look at the unit economics of Rent the Runway, it has struggled with the fact it's been really expensive for them to get subscribers. The cost of marketing to try and get each new subscriber in has been really high.

B (11:00)

Last quarter alone, seven and a half million dollars.

A (11:02)

Right. Just for just, just for a three month period. So I read all this. Okay. And I don't hear a growth recapitalization plan, but here's the problem. Yeah, go ahead.

B (11:12)

You don't hear a growth recapitalization plan, but I look around and I see people that love Rent the Runway. I live here in New York City and the women in my life love it. But my fiance gets her wardrobe for work delivered every week. It's crisp, it sometimes has new tags on it. I turn on the news and the newswomen are wearing renthorminway dresses that I recognize. And so I can see that there is a. There's a hunger for it, people like it. But maybe that's just in my small population here in the city.

A (11:39)

Well, the company's got about 150,000 active subscribers. There's been some growth recently, but overall, if you look at a longer track of data, it's not like this has been a rocket ship. Right? And again, if they wanted to rev up that growth, they're going to have to either spend more on marketing or they're going to have to figure out, you know, a price strategy. So again, I don't see this as a growth recapitalization plan. I see this as A desperately trying to avoid bankruptcy, trying to buy some time plan. And here's why. I think Time is not their friend as a public company. And I just personally think this is one person's view. This is not investment advice. It's just my perspective. I think they're running out of time because look at the numbers on their balance sheet. As of the end of July, there was about $52 million of cash. Right. We know that they've just raised another 20 million, so call it $75 million ish of cash today. We also know that for their last fiscal year they spent about $78 million. Right. On buying new clothes. So let's assume that they managed to pull off this new model a little bit. I think They've got about 18 months of cash Runway left. And by the way, competition's been heating up, right?

B (12:44)

You've got Nuuly and that's the rental arm of Urban Outfitters. So that's Urban Anthropologie Free People brands. They have 350,000 subscribers. So over twice as many as Rent the Runway. They just hit 50% revenue growth and.

A (12:57)

Record profit coming after their lunch. And now look, one of the things too, if you think about it, it's a newly owned by Urban Outfitters. Urban Outfitters has got a number of well known retail brands. It's got Anthropologie, it's got Free People, of course, as Urban Outfitters. And so one benefit that it has, unlike Rent the Runway, which is going out to buy clothing out of pocket or is trying to strike these deals, Urban Outfitters has a lot of inventory literally sitting in its stores. I think something like 50%. You were saying earlier, John, of the inventory actually does come from the retail brands.

B (13:29)

It owns itself and Nuuly is less expensive per month and maybe not every day. Do people want to dress up formally. You know, it's got more everyday wear and you can have outfits that are more affordable and you can just bum around in.

A (13:45)

Bum around in. The reason for return subscribers. I love it. Well, look, do you use Rent the Runway or Nuuly? We'd love to hear from you. Let us know what you think. Let's take a quick break and when we come back, why is NASDAQ investing in Gemini? John, we have a question from the audience.

B (14:00)

That's right. Scott in Tulsa wrote and I saw that Gemini Crypto Exchange went public this week. One article said that NASDAQ took a stake in it. Why is one exchange buying a stake in another?

A (14:10)

Yes, the founders of Gemini, the Winklevoss twins rang the opening bell at Nasdaq this morning. Now, Gemini is one of many global cryptocurrency exchanges offering investors a platform to buy and sell numerous tokens. Others that are public include Coinbase and Bullish. But Gemini's distinguished itself by offering a selection of other financial services, including a Gemini credit card, which lets users earn cryptocurrency rewards for their spending on the card. More than 70,000 of these credit cards have been issued to date, and the platform overall has scaled to facilitate more than $21 billion worth of assets. And Scott, you're right, because just before Gemini's IPO, news broke that NASDAQ plans to invest $50 million in the company. Now, as part of the deal, Nasdaq will offer Gemini's custodial services to financial institution clients. And meanwhile, Gemini will become a reseller for Nasdaq's Calypso solution. And that's to give Gemini's institutional customers access to collateral management solutions. It's a lot of terms, but it's an important financial service. So why is Nasdaq doing this? Well, $50 million actually isn't a lot of money for the exchange, which had over $730 million of cash on its balance sheet as of the latest available data. But it's certainly an interesting strategic move. And here's why. The exchange wants to lead in the world of non traditional assets. And earlier this week, Nasdaq filed a proposal with the securities and Exchange Commission seeking a rule change that would allow for the trading of tokenized stocks. That means a digital token or a coin created blockchain to represent a share of a real world company's equity. Now, this move, if it goes through, would position Nasdaq as the first major traditional stock exchange to allow tokenized securities trading. Now, Nasdaq's been around since 1971, and part of its DNA is being tech forward. And when it launched, its vision was to be an electronic automated exchange ahead of its competitors. And it was the first exchange to launch a website. Now, more than 50 years after it first came to life, it looks as though Nasdaq is trying to figure out how blockchain will play a role its next 50 years. And a partnership with Gemini, both a commercial one and as an investor, is one tool Nasdaq's using to get smart on the space.

B (16:25)

And if you have a question for Ann, send an email or Voice memo.

A (16:27)

To brewmarketshoworningbrew.com It's 4pm on the east Coast. The markets have closed. And we don't have a ticker tape, but we're going to throw it over to our human ticker. Our producer, John, thank you.

B (16:40)

The Dow was down nearly half a percent today and the S&P 500 finished flat. The Nasdaq was up half a percent, hitting its fifth record high of the week. And some market headlines. And to follow up on the public debut of Gemini Space Station, which is the full name of that company. Its IPO was priced at $28 a share, which valued the company at $3.3 billion. And today shares popped nearly 45% up to $40 a share and it ended the day closer to $32. And Federal Aviation Administration said today that it's launching a pilot program to speed up the rollout of air taxis. And you were talking about the players in this space on Wednesday's show. I suggest a listen to anyone who missed it. Two of those Evtol companies, Joby Aviation and Archer Aviation, were Both up over 2% today after the announcement.

A (17:25)

I love that you called out Gemini Space Station because I did a double take, actually. So this is a crypto exchange and the space station piece of it really threw me. So I double checked the ticker and everything today. Final thought, because this is something going to come back to and that is on StubHub. Now, StubHub has been an IPO that has been hotly anticipated for a while. I looked at this back in the spring. I nerded out. I read the prospectus, the filing and the road show finally launched for this company this week. Now I read in Bloomberg today that early indications are that the StubHub IPO is going to be oversubscribed. That's more demand than supply of shares when it's launching probably on Tuesday of next week. And this is one we're watching for lots of different reasons. So this is going to be a lot around. What is the market and the appetite for live event events, something that we've spent some time thinking about. What does it mean for tech stocks and IPOs more broadly? And also one of our favorite recent topics, what does it mean for founder control of private companies when they go public? We're going to hit on all of those themes next week. Meanwhile, that's it, folks, for today's Brew Markets Daily.

B (18:28)

Brew Markets Daily is hosted by Ann Berry and produced by John Croteau, Tarek Abdelatif and Emily Milian. Our technical director is Uchenawa Ogu and Jacob Schmidt is our audio engineer. The president of Morning Brew Inc. Is Devin Emery.

A (18:40)

Wake up on Monday with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew daily. Have a great weekend. We'll see you back here Monday, same time, same place.