On September 26, 2019, Peloton Interactive Inc. (“Peloton”) launched its IPO – priced at $29/share and ended at $25.76/share (down 11%)*. As a result, Peloton’s IPO became the second-worst performing IPO of 2019 and the third-worst debut offering since the financial crisis. Peloton offers fitness equipment integrated with a workout-streaming subscription service that can be purchased together or separately. The company raised $1.2 billion by selling 40 million shares at $29/share, and the launch of the IPO resulted in $900 million dollars of investor capital lost.

According to Peloton’s filings with the SEC, the company sells stationary bikes for $2,245, treadmills for $4,295, and connected fitness subscriptions for either $19.49/month or $39.00/month. In 2019, the company generated $915 million in revenue (up 110% from 2018) but incurred net losses of $195.6 million, which are nearly quadruple the losses from 2018.

Experts attribute Peloton’s disappointing IPO to an unrealistically high valuation of its stock price – ranging from $26/share to $29/share – as well as the company’s decision to sell at the upper limit of that range. Unfortunately, the increasingly common divergence between VC valuations and market expectations has resulted in disappointing IPO launches (Lyft and Uber), and caused companies to abandon their planned IPOs altogether (WeWork and Endeavor).

Although some may interpret this recent trend as an indicator of diminished investor confidence in the IPO market, it is likely that the disparity between valuations in the private sector and expectations in the public market is creating unreasonably high IPO prices. Professor Aswath Damodaran from NYU Stern School of Business recently stated, “[VCs are] overestimating the value of scaling up and underestimating the value of the business model.” In response, investor confidence in companies like Peloton, Uber, Lyft, and WeWork that focus solely on massive growth and scale without clearly delineating a plan to increase profitability appears limited.

Peloton launched its IPO without the typical indicators of profitability. By coming to the market at a loss, Peloton discouraged investors from having confidence in its valuation. Additionally, Peloton filed with a dual-class share structure, presumably to retain more control over the company, but this certainly deterred many investors that, as a rule, do not invest in this stock structure.

What this means for Peloton’s future remains to be seen, but it may indicate that companies looking to initiate an IPO should be more conservative with their valuations, come to the market with a clear path for profitability, and align more closely with market expectations going forward.

*When this article was written, Peloton was trading at $22.33 (down 23% from IPO).

Peloton’s IPO Falls Flat: Implications for the Future IPO Market

In late March, Bayer and Johnson & Johnson settled more than 25,000 lawsuits surrounding Xarelto, a blood thinner medication jointly developed by both companies. This $750 million settlement was in response to thousands of allegations that Xarelto causes uncontrollable bleeding leading to severe bodily injury and death. In addition to winning all six cases that went to trial, both companies continue to deny any and all responsibility associated with the alleged harmful side effects of Xarelto. So, why did both companies decide to settle?

While all pending cases were settled for a total of $750 million, Bayer and J&J are equally footing the bill. Therefore, both are responsible for less than $390 million. Moreover, Bayer’s product liability insurance will offset this figure substantially. Thus, on its face, the burden this settlement will have on both Bayer and J&J appears minimal.

In 2018, J&J’s Xarelto sales encompassed $2.5 billion of its total revenue. However, this figure is dwarfed by the company’s total $78.7 billion revenue in 2018. As for Bayer, Xarelto contributed $4.07 billion to their revenue streams last year. Moreover, as compared to similar lawsuits, this settlement is quite low. For example, amidst comparable allegations to those made within the complaints against J&J and Bayer, Boehringer Ingelheim recently settled 4,000 cases for nearly $650 million. In comparison, J&J and Bayer’s financial exposure is substantially less.

With that said, this recent settlement follows a significant increase in total litigation exposure for both companies. In March, Bayer announced that the Xarelto settlement allows both companies to move forward unencumbered by future costly and time-consuming litigation. For instance, J&J spent $1.72 billion on litigation last year alone. This figure is nearly double the amount spent in 2016. As for Bayer, after recently acquiring Monsanto Co., the company has been subject to many toxic tort claims. For example, after losing two cases involving Mansanto’s popular weed-killer, Roundup, Bayer’s stock took a hit in late March of this year. Thus, while the settlement amount encompasses a small portion of Bayer and J&J’s revenue in 2018, the litigation expenses associated with the Xarelto lawsuits were substantial. This suggests that settlements of this kind will remain crucial tools for large companies to avoid incurring excessive litigation costs, evade liability, and, ultimately, continue keeping investors happy.

Rising Litigation Costs Pressure Bayer and J&J to Settle Xarelto Lawsuits

Last week, Amazon founder Jeff Bezos’ personal security consultant Gaven De Becker went public with findings that concluded “with high confidence that the Saudis had access to Bezos’ phone.” Following The National Enquirer’s publishing of Jeff Bezos’ intimate text messages with Lauren Sanches, Bezos hired investigators to look into who was behind the data breach and subsequent leak to the controversial tabloid. The revelation took America by storm—the idea that the richest and most well-connected man in technology could have his personal data stolen is one that remains deeply unsettling. In addition to the probe, Bezos released a personal statement on Medium, wherein he exposed AMI, the parent company behind The National Enquirer, for what amounted to extortion before going public with the text messages.

The implication of Saudi involvement is not all too surprising, given The Washington Post’s unrelenting coverage of the murder of its columnist Jamal Khashoggi within the walls of a Saudi consulate. The coverage helped lead Saudi Arabia’s attorney general to concede that the murder was premeditated, and the CIA to conclude the Crown Prince himself as the mastermind behind the killing. As the owner of the Post, Bezos clearly had a target on his back.

The Saudi campaign against Bezos is not an isolated incident. According to Becker, Saudi Arabia attacks people in many ways, utilizing an extensive social media program that sometimes plants operatives within the company hierarchies themselves. It is thought that one of these many insiders may be AMI CEO David Pecker himself. The connections between Crown Prince Mohammad bin Salman, Pecker, and Donald Trump are conspicuous: Pecker bringing an MBS intermediary to the White House, publishing a pro-MBS magazine titled “The New Kingdom” shortly after a meeting with the Prince, and reports of AMI sending advance copies of the magazine to the Saudi Embassy.

To better understand the full picture of the Bezos debacle, it is important to understand that historically innocuous tabloids have become increasingly intermixed with politics, as the U.S. Attorney in the Southern District of New York emphasized in its case against Michael Cohen. Becker explains, “Though relatively benign at first, the Trump/Pecker relationship has metastasized: In effect, the Enquirer became an enforcement arm of the Trump presidential campaign and presidency.” Although there is no concrete evidence that indicate the Kingdom ever gave AMI the text messages that were released, the evidence is convincing.

Both AMI and the Saudi government have since released public statements, denying any involvement by the Saudis.

Investigator Claims Saudi Arabia Had Access to Bezos’ Phone

The Department of Justice is investigating Boeing following two crashes of its 737 Max 8 plane six months apart—the first a LionAir flight out of Jakarta, and the second an Ethiopian Airlines flight out of Addis Ababa.

The investigation of the world’s largest commercial airline manufacturer relates to Boeing’s business decisions regarding its nearly 400 737 Max 8 models operating around the world. More specifically, the investigation will likely focus on the ways in which Boeing cut costs and skirted FAA scrutiny to expedite its production of 737 Max 8 planes using a slightly modified original design save for a bigger engine. This decision—to only slightly modify the design of the 737 Max 8 so as to accommodate bigger, and more fuel-efficient, engines, rather than re-designing the plane completely—was allegedly the product of fear that Airbus would capture the market. In 2010, Airbus, Boeing’s only real competitor in the market for narrow-body commercial planes, had released its new A320neo model with efficient engines that presented a real competitive advantage over Boeing’s existing 737 models.

Because the bigger engines in the slightly modified 737 Max 8 design changed the aerodynamics of the plane, Boeing installed a special Maneuvering Characteristics Augmentation System (MCAS), which could override pilot decision-making. The current theory as to why the LionAir and Ethiopian Airlines flights crashed is that faulty sensors overreacted to the normally high angles of attack the planes assumed for takeoff, triggering the planes’ MCAS systems, which forced the noses of the planes down, and ultimately, into the ground.

If these preliminary findings are borne out, Boeing’s shortsighted decision to take shortcuts in its pursuit of more fuel-efficient engines—which has already cost the company $40 billion in market capitalization and has mired it in a public relations nightmare—could expose it to massive criminal liability.

Boeing’s Shortcuts Prove Shortsighted

The minority business community mourns an influential and monumental businessman who passed away last Sunday in the community he worked hard to redevelop. Grammy-nominated artist and Los Angeles native Nipsey Hussle, born Ermias Asghedom, was a pillar who laid the foundation for the change breeding in the Crenshaw district, change wrought with technological advances and financial freedom.

Nipsey has lived out the potential for change he once sought as a youth in inner-city Los Angeles, an environment that gang culture dominated. Hussle saw no outlets for youth to develop interests beyond entertaining or playing sports. Calling attention to the lack of diversity in the science, technology, engineering, and mathematics fields, Nipsey and his business partner David Gross launched Vector 90, a combination co-working space and STEM center, in the Crenshaw District. The 2-story center will serve as a conduit between young talent from impoverished neighborhoods and corporate partners in Silicon Valley and beyond.

Emphasizing the importance of financial freedom and economic mobility through his voice and actions, Hussle pioneered a number of innovative measures in marketing and self-promotion. His strong entrepreneurial spirit led him to employ what he dubbed a “Proud2Pay model,” making two of his mixtapes available for free download and selling a limited number of physical copies at a premium. He continued to leverage the relationship between culture and commerce through his business strategies. In achieving vertical integration, a business concept that combines multiple stages of production into one company, Nipsey controlled the musical fine-tuning from production to consumption, allowing his storytelling to yield authentic experiences that resonated with listeners instead of being controlled by “radio gatekeepers” or record labels.

His smart store, The Marathon Clothing, part of a sect of a strip mall he purchased and was working to redevelop into community-integrated commercial units, was only a start to his bridging the gap between culture, technology, and communities that so desperately need champions of their interests. Nipsey was one who understood the needs, struggles, and values that connected communities on both sides of the class system, having lived experiences on the street and in the boardroom, and his ability to communicate that through his brand is what made him genius. Hussle once said that the highest human act is to inspire.

Hustle & Motivate- Nipsey Hussle’s Work to Bridge the Gap between Hip-Hop, Technology, Business, and Minority Communities

On March 26, 2019, Uber announced its agreement to acquire its Middle East competitor Careem Networks for $3.1 billion. Careem is a technology platform extending from “Morocco to Pakistan, Turkey to Sudan.” The app is popular among countries that prefer to use cash over credit. Careem’s success comes from its in-depth local knowledge and expertise, which caters to young tech-savvy populations.

Mapping is a vital aspect to ride-sharing apps because it allows drivers to know where to pick up and drop off customers. While Uber uses various mapping resources, the company relies on Google Maps the most. Google Maps falls short in its mapping efforts throughout the Middle East, which pushed Careem to take over. Google Maps falls short because it lacks the precision needed for a ride-sharing app. Meanwhile, Careem had already mapped over 45,000 miles for its taxi service.

Mapping requires a significant investment because it is primarily a manual process where each block in each neighborhood is documented. Uber’s acquisition of Careem will benefit both companies while still allowing them to operate separately. Careem will continue as an independent brand, which will enable both companies to build new products and try new ideas. As the companies progressively integrate, they hope to operate more efficiently. Uber hopes the integration will produce lower wait times, stimulate innovation in the region, and allow for an expansion of new products like high-capacity vehicles and payments.

The Middle East is growingly becoming an essential market for technology innovation and investment. Last year, $3 billion in technology investments were raised in the region. Ala’ Alsallal, the founder and CEO of Jamalon, a bookselling and buying platform, stated, “My mission is to … get connected, and [close] the gap between what we have access to and what the West has access to.” For several reasons, like war, widespread corruption, and conservative ideals, the Middle East is a difficult place to live and start a business. Technology platforms play an important role in providing access to services.

The Middle East is not the only region in the world where people fall behind in access to services that folks in “the West” have an abundance of. If successful in increasing technology innovation, I believe the region will be an influential example to other areas in the world, like Latin American. Increased technological innovation and access in the Middle East means more connectivity with the region and the rest of the world. I hope this increased access to services and connectivity will lead to an increase in positive narratives of the Middle East and its people.

Uber Has Acquired Careem to Expand in the Middle East

President Trump turned to Twitter to comment on the historic Lordstown, Ohio, plant. General Motors operated the Lordstown plant for 52 years until the company opted to shut it down in March. The decision cost 1,500 jobs and landed GM in a lawsuit against the United Auto Workers.

President Trump urged GM to either sell the plant or reopen it. But, there is not much hope of either happening soon. GM is a zombie. It was destined to disappoint the moment its management went begging on Capitol Hill in 2008. The reorganization was a political decision, not a financial one. GM survived the last financial crisis because of TARP bailouts. That GM required taxpayer funds means nobody in the private sector — who would have skin in the game — thought it made sense to preserve GM as it now stands.

Maybe the Obama administration exercised the sort of foresight that only wise politicians possess. But, it was not their money they ponied up. They had no skin in the game and no real incentive to judge the economic merits of GM’s reorganization plan. GM ultimately sold a few of its subsidiaries and renegotiated some of its obligations to stakeholders. But, there was no “rebirth” of GM.

GM’s failure in 2008 was partly due to labor disputes. The company is now embroiled in a lawsuit against the United Auto Workers. Things have not changed for GM.

In the wake of the Christchurch shooting, The French Council of the Muslim Faith (CFCM) filed legal papers against the French branches of Facebook and YouTube for failing to remove related content fast enough. Under French law “broadcasting a message with violent content abetting terrorism, or a nature likely to seriously violate human dignity and liable to be seen by a minor” is punishable by up to three years jail time and $85,000 fine.

The shooting, which was initially live streamed on Facebook for seventeen minutes, was undetected by the platform’s AI system and remained up for twelve more minutes. By the time Facebook removed the video, it had been uploaded to 8chan, a cite known for its white supremacist postings. From there, the video was disseminated across the internet, where both Facebook and YouTube failed to identify footage that remained up for hours.

CFCM’s stance that tech companies have a responsibility to better prevent the upload of terrorist content was echoed by the chairman of the U.S. House Committee on Homeland Security, Bennie G. Thompson. In a letter to the executives of Facebook, YouTube, Twitter, and Microsoft, Thompson tells the tech giants they “must prioritize responding to these toxic and violent ideologies with resources and attention.”

But unlike the European union, where Facebook’s responsibility stems from public sentiment and corresponding legal liability, the US differs dramatically. American ideals of free speech and individual responsibility are distorted by political rhetoric that frames legal liability as a slippery slope to quashing free expression. This view is confirmed by our own legal system, which insulates Tech companies from facing recourse for the hateful content and subsequent violence enticed, in part, by users and content on their platforms.

American Courts have repeatedly dismissed lawsuits similar to the CFCM complaint at the pleading stage, ruling that Section 230 of the Communications Decency Act of 1996 bars these complaints. Section 230 states that providers of interactive computer services cannot be treated as publishers of user postings. This gives tech companies sweeping immunity from violent acts that are directly linked to user content. For instance, victims of the Pulse Nightclub shooting were barred from bringing a lawsuit against Facebook, Twitter, and Google for allowing violent and hateful videos that radicalized the shooter to remain on their platforms.

In some ways, this is a good thing. Sparing interactive internet companies from liability focuses fault on the individual perpetrator. Moreover, people are validity concerned about policing speech and narrowing viewpoints. However, the flip side is a lack of civil recourse to address substantial wrongs and the resurgence of violent far-right ideologies.

Given that over 1.5 million attempts were made to reupload the video to Facebook alone, AI detection is the most viable way to stop violent content from being disbursed across the internet. Expanding legal liability has already proven to effectively block harmful user content. As shown by the FOSTA-SESTA ACT, making websites liable for illicit sexual activities taking place on their platform incentivized companies to develop effective technology to identify child pornography. A similar legislative act that expands liability to encompass the distribution of violent content could incentivize tech companies to develop more effectual preventative AI tech.

As modern day monopolies, Tech companies such as Facebook and YouTube have a responsibility to protect users from violent content. And as threatened by Thompson, if they are unwilling to make this goal a priority, our legal system should.

Preventing Terrorist Content- Using Legal Liability to Incentivize Tech Companies to Develop More Effective AI