🕶e8: Public Woof, Private Woof, Public Woof!? How Does The Public Become a Whale?
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🐕 Public Woof, Private Woof, Public Woof!?
It isn’t a secret that people are willing to splurge on their pet, and while the pandemic has left many of us isolating, our pets are the only living things some people get to interact with on a daily basis. Pet companies have been thriving off this trend so much that this past week, Petco decided to make their company public and their stock has been reaping the benefit. This is an interesting move as the company had gone public before in 1994, but then was taken private in a leveraged buyout by Leonard Green Partners and Texas Pacific Group. (Remember: they are not the only company that has done this - Dell went public and then private back in 2013) Let’s take a closer look at what got this pet industry sparked up, and why that would prompt a leader in the market to go back to being public!
Pets = Cash?!?!
The pandemic has fueled a major desire for household pets as many of us have been left to isolate alone. This surge in pet adoptions has caused a major increase in demand for pet products and the companies selling them have been loving the extra revenue! Chewy, a competitor in the space, has seen its own shares rise 250% over the past year. Also, dog subscription service BarkBox was able to secure $1.6 billion in their own blank check deal last month.
Why Go Back Private?
Shifting our attention back to Petco, this isn’t the first time the company is going public. Let’s discuss the advantages to going private and why Petco did it in their buyout. Strategically thinking, equity market trends in different cycles, and when they tend to underperform, the price of companies’ stock seems “cheap” to private investors. Private Equity companies tend to capitalize on these market trends by taking companies such as Petco private to revamp their operations. Being able to devote more resources and development into the company, while not having to meet quarterly earnings expectations, perform time-consuming regulatory reporting, and much more, ultimately allows them to flourish while waiting for the right time to potentially re-enter into the public markets.
However, let's quickly discuss why a private company would want to dip their toes back in the public market. Taking a look at the macro view, we are in a favorable economic market with all-time low interest rates, increased demand for investors to seek yield elsewhere (underperformance in alternative investments while the equity market is soaring), and strong market conditions (surge in demand for pet products).
The only thing that makes me sad is that I wrote this article and I have never owned a pet :( WIth that being said, I believe the Pet Industry will continue to see strong demand even as the pandemic winds down. After all, it's not like we're going to just stop splurging on our cute best friends. One thing I am interested in seeing play out is how Petco, the 55 year-old brick and mortar, will compete against new innovative companies like Chewy. Investing in their in-store experience will probably be their best bet. It is interesting to note that Petco’s competitive advantage is their in-store experience (which Chewy can’t offer as it is all online). Why focus on online retail when you will be competing against Chewy and Amazon? That is a losing game, my friend. Also of note, Chewy is not profitable yet, but who is these days?? lmaooo...All in all, Petco timed its entrance into the market just right, and I’m excited to see the rivalry play out.
Want to see some cute doggy gifphs? Scroll all the way down!
📈 How Does The Public Become a Whale?
A very not so long time ago, traders had to face commissions for trading in their brokerage accounts. OMG CAN YOU BELIEVE THAT?! Today, many are faced with the luxury of new companies such as Robinhood and more that offer a free fee model of trading allowing for more retail investors (like the rest of us) to try our hands at investing. The pandemic alone has left people bored and wondering what to get into, and lots of people have opened up new accounts. If you are a degenerate like me, you probably have found yourself on Wall Street Bets (which has over 1.8 million users), Twitter, Reddit, and other social platforms reading about others’ opinions on investing, etc. What blows my mind is the ability for these platforms to lure individuals and create trading schemes that move the market. Let's take a closer look at what the heck is going on here.
More than 10 million new brokerage accounts were opened in 2020, JMP Securities estimates
On peak trading days last year, individual traders are estimated to have accounted for nearly 25% of U.S. trading activity, Citadel Securities estimates
Social Media Power
Many inexperienced traders have looked to sites such as Twitter, Reddit, and TikTok for investment suggestions, leading to “hypes.” The most recent one has been Gamestop, which has seen its shares soar 60%, the most in the company's history. Although they did announce three new board members to help the struggling company make a turnaround, news like this does not bring that much upside and so, you guessed it, this is where Wall Street Bets comes in. Gamestop happens to be the second most shorted company on the New York Stock Exchange but Wall Street Bets gave 0 F**KS. These so called influencers on the page were encouraging average Joe Shmoes to invest into Gamestop to drive up demand.
Pump the stock price up, scaring the sh*t out of the shorters who would have to cover their shorts if the price of the stock increased, ultimately pushing them out of their positions and decreasing selling pressure, thereby allowing buyers to re-enter causing the price to rise.
What blows my damn mind is how can you put your monay into something you don’t understand (disregarding the fundamentals or valuations). This is not even trading - it’s purely just gambling. I don’t know how sustainable this is, yet alone healthy for the broader economy.
We might see more strict moderation on platforms from randoms shilling their investment penny stocks. But at the end of the day who is the real winner? The floodgates are open and now the game will be between Wall Street Bet Traders and Wall Street….and we know who will win that.
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💯Thank You For Reading, See You Next Week!
What's up, my name is Evan Hiltunen! I am a recent finance grad from Indiana University and financial analyst @ Goldman Sachs. I have a strong passion for start-ups, finance, and technology, and I hope you find this newsletter informative!
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