F45's dramatic IPO and stock collapse


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High-profile gym franchise F45 is in hot water again after it released its restated financial accounts, which showed that over the past two years, it had suffered losses of around $USD370 million. It is also facing lawsuits from franchisees and celebrities who used to endorse the brand.

F45 established its first gym in Sydney in 2013 and it took the world by storm using the franchising model to establish more than 1500 studios in 63 countries worldwide by June 2021.

The gym was made popular with the likes of Mark Wahlberg, who is an investor and now the franchise's chief brand officer.

mark wahlberg f45 gym collapse
Actor and producer Mark Wahlberg is a financial backer of F45 and the chain's chief brand officer. Photo: Jeff Bottari/Zuffa LLC via Getty Images.

The rise and fall of F45

F45 went public on the NY Stock Exchange on July 14, 2021, with an offer price of around $USD16 a share.

Investors must now be scratching their heads at what went wrong, given that over two years later, F45 is on the brink of collapse.

The shares were de-listed from the NYSE in September with a final listing price of just $USD0.025.

Anyone who invested in the initial offering has lost most of their investment with the stock down 99.84%.

Unfortunately, when a stock delists from an exchange the only way to sell your shares is to find a private buyer and sell them directly, which is unlikely to occur given what is unfolding with F45.

Unfortunately, unless someone can jump-start the company most investors will have lost everything.

IPO lessons

So what lessons can we learn from this?

Be very cautious when deciding to invest in any Initial Public Offering (IPO) because my research shows that within the first 12 months of listing, both in Australia and the USA, 50% of companies who list trade below their listing price.

This is supported by an article from NASDAQ which states that the proportion of unprofitable companies that list on the stock exchange has been rising since 1980. Another study from NASDAQ ranging from 2010 to 2020 found that the majority of companies had a negative return of 64% within 3 years of listing.

It's important to remember that an IPO document is a sales letter written by the marketing team with help from the accounting team and its goal is to get you to invest. Unfortunately, too many investors fall in love with a stock or its story, which is what happened with F45.

Shockingly, investors are also tempted to buy more of the stock as the price falls, while others buy in for the first time believing the stock is cheap after it has fallen. They justified their actions by the fact that Marky Mark and other famous people were backing it so it must be a winner.

As I always say, don't try to catch a falling knife but in the case of F45, I think they tried to catch a chainsaw. The key lesson is to never invest in an IPO until the stock is trading on the market for a reasonable time as you can never be sure how good a company is until the broader market shows support.

What are the best and worst-performing sectors this week? 

The best-performing sectors include Utilities and Materials, as they are both just in the green for the week followed by Healthcare, which is just in the red.

The worst-performing sectors include Real Estate down more than 4% followed by Energy and Information Technology, which are both down more than 2%.

The best-performing stocks in the ASX top 100 include Lynas Rare Earths up more than 13% followed by Bluescope Steel up more than 5% and IDP Education up more than 3%.

The worst-performing stocks include Nine Entertainment Group down more than 8% followed by Mirvac Group down more than 7% and Virgin Money down more than 6%.

What's next for the Australian stock market? 

There are only two things you can control in the stock market, when you buy and when you sell, the rest is up to the market. In my decades of analysing the All Ordinaries Index, the one thing I know for certain is that it always proves who is in charge and provides us with lessons, which is what is occurring right now, and you may wonder why.

The stock market is cyclical, which means if we study its historical data, it can provide a good indication of where it might head in the future. However, we cannot predict volatility, which arises from global events such as COVID-19 or the September 11 attack on the World Trade Centre.

As to what is occurring right now, I believe world markets are nervous about what is unfolding in Gaza, which means they are reducing their exposure to risk.

As I have mentioned a few times in the past couple of weeks, the Australian stock market could fall below the 7000-point support level, which occurred this week, with the market falling to 6966 points.

So where to from here? While I may be overly bullish, I still believe the end of the move-down is very close. Once again, I continue to urge everyone to remain patient to use a stop loss on your stocks.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.