Smile Direct Club — No Smiling Allowed

Comes now the curious story of Smile Direct Club — the worst Initial Public Offering of 2019.

IPO prices at $23 and rests comfortably this morning at a bit above $9. Ouch. We are talking a huge loss of value, down 60%.

Here are the Smile Direct Club founders, Jordan Katzman and Alex Fenkel. Does it strike you as odd that neither of these co-founders are smiling? Seems a little creepy as if they are doing it on purpose.

What’s your beef, Big Red Car?

What I want to focus on is the “head fake” quality of an IPO like this. [Will Wall Street ever get embarrassed or ashamed at pumping this crap out?]

It is worth noting that the pricing exercise went gangbusters. A $19-22/share range went out the door at $23/share.

For those keeping score at home, that was more than 10X revenue — huh? WTF? An unprofitable company prices at in excess of 10X revenue and nobody seems concerned?

The stock fell like a rock, but it priced higher than the top end of the range.

Punch line: the value of the last money raise before the company IPOed is now approximately the same value as the market cap of the company. [Do the words “pump and dump” mean anything to you?]

The entire IPO turns out to have been a financial head fake. There was no real additional value. The IPO value was “illusionary.”

When tested by the crowd, the value of the company was the same value today as when last they raised money.

One more thing, dear reader, the SDC deal had all the same turds floating in the punchbowl of other recent IPO shitstorms:

  • Dual-class share structure <<< nothing says you are stupid like this
  • Founders controlling the company through stock legends pertaining to voting rights
  • Scaling losses as the firm grew <<< in fairness, revenues were scaling also
  • A recent sales and marketing expense boom
  • Major non-recurring revenue

All of the signs of a crappy deal were right in the S-1.

Who is Smile Direct Club, Big Red Car?

Smile Direct Club is straight teeth coming to you via the mail for $2,000.

You send them a mold of your teeth (they also have stores), they send you a series of progressive re-alignment molds (aligners), you sleep in them, and in a short period of time, you are looking good at a price that is cheaper than going to that dentist who labored through dental school (took out all those expensive student loans) because he couldn’t get into medical school.

Sounds legit, no?

Is this legit, Big Red Car?

Ahh, this is why you have to read the S-1 and not rely on your Uber driver for investment advice.

In the S-1 (and in other places) the issue of unlawful practice of medicine reared its ugly head.

Smile Direct Club calls their shtick “teledentistry.” Sort of plays into the hands of those who say you have to go to dental school, get a license, and actually evaluate your patients in person.

Dental lobbying groups are well funded, pissed off, and it’s an election year — toxic combination.

The State of California — where the trend setters set the country’s trends (skinny jeans started in Cali) — just passed a law, Bill 1519, that throws some sand in the perfect teeth of Smile Direct Club.

California Bill 1519

California Governor Gavin Newsom signed it yesterday. Guy has pretty straight teeth, no?

Bottom line it, Big Red Car — I need a cup of coffee

OK, dear reader. The IPO run up in value was a total fabrication. The company is worth today almost exactly what it was worth when last they raised money.

The public stock value performance is FUBAR.

The company is operating in a space where they could be wiped out by judicial fiat or a law — talking to you, California.

There is no good reason why this company got public other than that its name is not WeWork.

But, hey, I could be wrong. What the Hell do I really know about anything? I’m just a Big Red Car. Never, ever, ever take investment advice from a 1966 Impala convertible who knows how to type. Talk to an Uber driver, a pro.