Comment: Why you might Hide Earnings Before an IPO

/from a group chat/

AirBNB recently reported 2Q2019 earnings, and it was lossy. In 2017 and 2018, however, they reported positive EBITDA.

Me: If they're actually doing OK, a safe strategy is to under-report earnings (hide it), then IPO, then realise value in quarters after that.

X (paraphrased): Why would they reduce their IPO price?

If you are the team that owns 100% of the pre-IPO stock, you are seeking to IPO for one of a few reasons. (I have done this before in a small way, so I would say I may have a personal bias... see endnote.)

(1) You want to liquidate your position, and cash out.

(2) You want to raise money for the company, which goes to the company, not you, to grow the company's operations.

(3) You have some arbitrary business target to meet, due to promises you've made in the past (e.g. two years ago, you promised someone that you would IPO in two years, in exchange for something).

As the pre-IPO team, you have (comparatively) deep insight into the past, present, and future quarters of the company's performance, as well as the performance of your competitors in general. So you can kinda see which way things will go. Now the question is whether you are motivated by (1, 2, or 3)?

If you are aiming at (3.) it can be complicated, depending on the agreement. Perhaps there are further targets you have been given to hit specific stock prices at T=IPO+1Q or T=IPO+2Y, etc.

If you are aiming to max out opportunity (1. or 2.) then you have to ask if you are looking for a one-time event, and or a series of subsequent events. E.g. if you want (1.) do you want to sell all at once, or sell a bit at IPO, then more at IPO+1Y, then more at IPOD+2Y, etc. The same question arises if you are looking to raise money (2.) for operational and capital expenditure.

If you are looking for a one-time event, then the usual tactic is to pump and dump the stock. So yes, you would hide losses, announce earnings, and sell, then fuck everyone else over. This is generally not preferred - although when it happens, a lot of people tend to ENVY this practice. I do not, mostly. I mean, I would do it tactically, but I would not currently design an economy or my life to allow events like this in general lol.

If you are aiming for a series of events, then you want to manage your track record of not losing money, so that future buyers of the stock would want to pay a higher price for it.

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Endnote:

In 2015, I did a mini-IPO of sorts, by crowdfunding a stock sale in a restaurant before the SC started to regulate ECF. I sold the stock at par, meaning that under motivation (2.) I was valuing the company as low as I possibly could. Yet to-date we are losing money on paper, and there has never been enough old or new investor confidence to raise more money. TLDR, it's just business, roll with it. Your mileage may vary.

I am still looking for new cofounders, to grow this business:

(a) a COO to take over product R&D and operations management under my guidance (guessing this is harder to find)

(b) a CFO to take over bookkeeping, quantitative QA, old investor management, new investor grandstanding (guessing this is easier to find)