Slate Money: Implosions (September 28, 2019)

Episode Overview

In this high-energy episode titled "Implosions," host Felix Salmon (Axios), with co-hosts Emily Peck (HuffPost) and Anna Shymansky (Breaking Views), tackle one of the wildest weeks in recent financial history. The conversation revolves around three major corporate implosions or crises: the shaking IPO market (with WeWork, Peloton, and SmileDirectClub in the spotlight), the Juul vaping controversy, and the abrupt collapse of Thomas Cook. The hosts analyze what these ‘implosions’ reveal about broader trends—questioning investor psychology, regulatory gaps, and the evolving shape of markets.

The Imploding IPO Market

Main Takeaways:

• 2019 has been a notoriously bad year for high-profile IPOs. Many companies are trading below their listing prices, defying the usual model where IPO stocks climb on their debut.
• Featured cases include WeWork pulling its IPO, Peloton’s disappointing launch, and SmileDirectClub's rapid stock drop.

Key Discussion Points:

• [00:39] IPOs are underperforming: “48% of the companies that went public this year are trading below their IPO price...This is incredibly unprecedented and rare.” — Felix Salmon
• [02:12] Not just 'duds': Uber, Lyft, Peloton, and SmileDirectClub all debuted badly.
• [03:12] Investors did buy these IPOs at high prices, only for stocks to drop. “They raised equity capital at a premium to the market price. And you’re like, wow, you managed to sell your stock higher than anyone was really willing...” — Felix Salmon
• [04:01] Is it a problem with public markets or with venture (private) valuations? Discussion focuses on how companies have stayed private too long and built up unrealistic valuations.

Notable Quotes:

• "Peloton... dropped 11% on its opening day is still worth $7 billion or something, which is more than the $4 billion it was worth in the last private round." — Felix Salmon [04:35]
• “These companies captured a lot of the value you would normally capture in the public market, in the private market.” — Emily Peck [04:56]
• “It used to be that companies were going to go public at a much more immature stage ... [so] public investors ... had much, much more upside.” — Anna Shymansky [05:00]

On WeWork’s Debacle:

• [05:28] WeWork’s CEO Adam Neumann is ousted; the private jet sold; IPO canceled despite heavy investment bank pushing.
• [06:14] JP Morgan's culpability: “They were positioning themselves as Silicon Valley’s startup go-to shop... they helped [Neumann] finance those buildings.” — Anna Shymansky
• “Incompetence layered on stupidity layered on following procedures.” — Emily Peck [07:28]
• [07:53] “If you are a sober-sided international banker ... those are the people you don’t want to encourage. And yet that is exactly the guy that he encouraged.” — Felix Salmon

Why Go Public Now?

• [09:39] Many IPOs are driven by companies' need for cash, or by investor pressure to 'cash out'.
• [10:47] Growing sense that private markets are losing their appetite for late-stage 'unicorns' at high prices.
• [12:08] The hosts discuss the 'man-child' CEO archetype in SV, hoping WeWork’s saga will end that era—“I’m hoping that with WeWork and Adam Neumann, the bad boy CEO goes away forever.” — Emily Peck

Interesting Moment:

• [13:32] Market psychology is “schizoid.” For every failed IPO (Lyft), there’s also a soaring one (Beyond Meat, Zoom).

Juul: From Darling to Disaster

Main Takeaways:

• Juul Labs, once valued at $35 billion after Altria’s $12.5 billion investment, now faces regulatory storms over vaping's health impacts and growing youth addiction.

Discussion Points:

• [19:30] Altria invested at peak valuation, but “that $12.5 billion investment — how much do you think it’s worth today?” “Zero.” — Felix & Anna [20:05]
• [20:23] Mysterious lung illness (over 800 cases, at least 13 deaths) tied to vaping, though often linked to black market THC cartridges, not Juul directly.
• [21:11] Regulatory panic: Massachusetts bans vaping for four months; Walmart restricts advertising; the FDA is reacting, not anticipating.

Regulatory & Ethical Failure:

• [23:16] Juul claimed vaping was 99% safer than smoking, a claim not authorized by the FDA—"By making that claim very loudly and very publicly, they were breaking the law." — Felix Salmon
• [24:11] Massive increase in youth vaping: “In 2017, 12% of teens were vaping. In 2019, it’s 28%.” — Emily Peck
• [24:55] “They’ve hooked a whole new generation on this addictive product. And then vaping goes away, and everyone’s back to smoking. It’s like a nightmare.” — Emily Peck

Industry Fallout:

• [26:51] Juul’s founder ousted; replaced by a “tobacco CEO” who understands regulation: “Tobacco CEOs understand that they are working in a regulated industry and they need to follow the law.” — Felix Salmon

Altria’s Strategic Blunder:

• [28:06] "Altria could have got all of the benefits to Juul imploding without putting $12 billion into Juul." — Felix Salmon

The Collapse of Thomas Cook

Overview:

• Thomas Cook, the 178-year-old British travel giant, suddenly liquidated, stranding hundreds of thousands of travelers and threatening associated industries across Europe.

Key Segments:

• [28:16] “It fell apart, Felix.” — Emily Peck
• [29:15] Not standard bankruptcy — “This is complete liquidation...Travel agency is a very asset light business.” — Felix Salmon & Anna Shymansky
• [29:55] Cause of collapse: excessive debt, not just changing travel habits. One-third of cash flow went to servicing debt.
• [31:02] Airline failures are uniquely disruptive in Europe due to lack of consumer recourse compared to US ticket-buyers, who rely on credit card protections.
• [34:44] Beyond travelers: The ripple effects on hotels in Turkey, Spain, Greece — “There were stories of hotels literally not letting guests check out until they paid their bill because they hadn’t been paid by Thomas Cook.” — Felix Salmon

Cultural Shifts:

• [36:15] The demise of the in-person travel agency model: “I can’t believe it still existed. A huge Travel agency in 2019, like who is going to the high street and booking a trip.” — Emily Peck

Notable Quotes & Memorable Moments

• “[WeWork] was incompetence layered on stupidity layered on following procedures.” — Emily Peck [07:28]
• “The bad boy CEO goes away forever. I don’t know. It’s just a hope. Please continue.” — Emily Peck [12:05]
• “In 2017, 12% of teens were vaping. In 2019, it’s 28%.” — Emily Peck [24:25]
• “Altria could have got all of the benefits to Juul imploding without putting $12 billion into Juul.” — Felix Salmon [28:06]
• “There were stories of hotels literally not letting guests check out until they paid their bill because they hadn’t been paid by Thomas Cook.” — Felix Salmon [35:46]

Numbers Round ([37:59])

• Anna: 12% — The coupon rate Aston Martin had to pay on its new bond, reflecting its financial distress and high borrowing costs.
• Felix: 80 — The number of Google contractors in Pittsburgh who successfully unionized with United Steel Workers.
• Emily: 54% — The increase in average family health care premiums over the past 10 years, now totaling over $20,000 per year per family.

Conclusion

The episode masterfully ties together the theme of “implosions” as the hosts examine tectonic shifts in finance, tech, consumer behavior, and corporate governance. Whether discussing IPO crashes, the vaping industry’s rapid reversal, or the collapse of an iconic travel brand, the podcast underscores the forces upending traditional business narratives.

Key Segments by Timestamp:

• IPO market implosions: [00:39]–[18:18]
• Juul and vaping industry crisis: [19:28]–[28:08]
• Thomas Cook’s collapse: [28:16]–[37:55]
• Numbers Round: [37:59]–[42:33]

This detailed summary covers the episode’s main arguments, notable quotes, and key segments with timestamps—giving listeners a clear, engaging sense of what was discussed and why it matters.