Confidence is up in the U.S. economy.
On Thursday, we learned that Americans have been quitting jobs at the fastest pace in 16 years. In January, 3.22 Americans quit their jobs, the highest single-month total since February 2001.
Quitting your job is not something to take lightly, and the economic read-through is that an increase in quits is a sign of increasing confidence among workers. Earlier this week we saw both small business and big business executives indicate their bullishness on the economy, and on Friday, we’ll hear from consumers.
The preliminary reading of consumer sentiment in March from the University of Michigan will be the economic data highlight on Friday morning. This measure, like many others related to confidence, has soared since the election.
On Thursday, Canada Goose (GOOS) marked the second successful IPO of a major consumer name we’ve seen this month.
Shares of the luxury winter coat company rose 25% on their first day of trading, following Snapchat parent Snap Inc.’s (SNAP) similarly successful debut when shares of that company rose 44% on its first day. That one of these is a tech company with a famous CEO and that one of them sells a warm-coat-turned-status symbol does not make their debuts incomparable.
Joe Weisenthal, an editor at Bloomberg, tweeted on Thursday that Canada Goose’s debut would be the “Heelys IPO of this cycle.” For those who have either forgotten or never knew about Heelys, they are shoes that had built in wheels in the heel.
This is not a joke.
Heelys, perhaps predictably, flopped. The stock popped 55% on its first day of trading in December 2006 to close at $32.50 per share. In January 2013, the company was purchased by Sequential Brands for $2.25 per share.
Now, certainly someone made money along the way trading Heelys shares, but by almost any measure, this thing was a disaster. Shares went to around $35 shortly after the debut, and by the end of 2007 the stock was below $10. By the end of 2008, shares were below $5 for good.
And I think the demise of Heelys — and the early success-met-with-skepticism of Canada Goose and Snap — poses an interesting question about what public markets are for.
The simplest reason for having public markets, and for taking your company public, is liquidity. Markets offer companies a (sometimes) willing shareholder class that provides ready capital to either continue or expand operations. In exchange, companies give away a little bit of their future profits to these shareholders.
In the case of a company like Snap, public markets also provide an opportunity for company insiders or early investors, who were sitting on illiquid positions in the company, the chance to cash out.
And while some commentators could argue a company like Snap, which isn’t profitable and said in its prospectus that it might never be, is treating the public market like a piggy bank, there is clearly a class of investors willing to take an entitlement to some of Snap’s future profits off the hands of existing shareholders.
Now, you could argue that viewing post-IPO investors in a company like Snap as those who want a cut of future profits is too charitable, and news reports of millennials buying up Snap stock are obviously angled towards highlighting the ignorance of those who bought the stock. Additionally, many IPO buyers might not have wanted the stock because they like Snap, but because they felt confident they could sell shares of Snap to someone else at a higher price in the future. Which is not really investing, but speculation.
Which brings us to another IPO rockstar of year’s gone by — GoPro (GPRO) — who has had a Heelys-like trajectory in markets over the last couple years.
On Wednesday, GoPro announced it would cut 270 jobs and take a $10 million charge. The company also said it expected revenue to be at the upper-end of a $190-$210 million range, and said it still expects to be profitable on a non-GAAP basis in 2017. This comes after a 2016 that was a total disaster for the company.
GoPro cut 200 workers during the year and in the the third quarter it said revenue fell 40%. GoPro’s problem is, as Yahoo Finance’s Ethan Wolff-Mann has said, it acts under “the assumption that you can do cool things that those things will look cool on camera.”
A professional snowboarder using a GoPro is cool. A regular person using a GoPro is not cool.
But back when the company came public, this was a criticism lots of people were making. It’s not really novel, then, to argue that GoPro is a company which offers a niche product to a niche audience and would struggle to break into the mainstream. Any investor could’ve easily been aware of this critique and yet GoPro shares still doubled within months after hitting the market. The stock is now down about 90% from its peak.
Which brings us back to the question of what public markets are for.
Public markets are for liquidity — they provide companies with liquidity and they provide investors with liquidity.
For an executive who has previously only had a few chances to see their profit shares in a company turned into cash, this public market liquidity is good. Not everyone, however, is going to benefit from this feature. The ability for an investor to readily buy shares in a company that is doing poorly makes it easier than it might otherwise be for that investor to lose money investing.
The enduring memory of the tech crash, for many, was the wave of IPOs we saw of companies that weren’t not just unprofitable but had hardly any sales. These were businesses without any business. Which is to say, not businesses.
And so with each new debut, there seem to be a fresh wave of questions about what this debut says about the state of public markets and the economy more generally. The answers are always the same: whatever you want it to say.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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