- WeWork's unraveling public offering plan will have fallout for direct-to-consumer brands and other companies eyeing IPOs, said Tim Armstrong, former AOL and Google exec and founder and CEO of the DTX Company.
- Armstrong said that one such company that could take a hit could be Peloton, despite its having strong financials.
- Government scrutiny facing big tech companies and the rise of privacy laws also threaten DTC companies, he said.
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WeWork's unraveling public offering plan could hurt other companies eyeing IPOs and direct-to-consumer startups, said Tim Armstrong, former AOL and Google exec and founder and CEO of the DTX Company, and marketing guru and NYU professor Scott Galloway.
On stage at Advertising Week on Wednesday, Galloway and Armstrong discussed the implications of the embattled coworking company's fall.
Galloway said that founders came to be seen as indispensable after the success of Steve Jobs at Apple and Bill Gates at Microsoft, but that that would now change.
"We've hit peak founder," said Galloway, on WeWork's downfall. "The lines between vision, and bullshit and fraud have become increasingly narrow. And in this instance, they've been crossed."
WeWork recently postponed an IPO and has been mulling slashing its valuation to lure investors, according to media reports. Its S-1 filing revealed details behind its wide losses and mounting pressure on founder Adam Neumann, who stepped down as CEO.
Armstrong, speaking on the impact WeWork would have on other companies, said: "Valuations overall will probably go down...and WeWork is gonna bleed into a lot of the other companies that have business models that are gross margin-negative."
Armstrong said Peloton, for one, would take a hit. Peloton's stock began trading on the Nasdaq on Thursday, starting at $27 a share — nearly 7% lower than the $29 price set in the company's IPO — and closed down 11.2% to $25.76 a share.
"[WeWork] is going to have a bigger dent than people realize," he said. "I think it [Peloton] gets out and I think, it goes up... slim chance... but if it does, I think it will repair some of the We stuff."
Armstrong also said growing government scrutiny facing big tech companies including Facebook and Google, the rise of privacy laws, and increasing customer acquisition costs are hurting startups. DTC companies that are unable to show growth and a path to profitability will face tougher scrutiny. DTC founders need to understand their unit economics and explain how they plan to grow their customer bases, he said.
He said he was still bullish on DTC brands that are solving problems for customers but that only some were likely to succeed, such as Third Love that's taking on big incumbents like Victoria's Secret, as opposed to those in more crowded categories.
"You'll end up with hundreds of companies that have solved very specific issues," he said. "And I'm sure there'll be giant roll-ups of DTC companies over time."
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