Thanks for reading The Briefing, our nightly column where we break down the day’s news. If you like what you see, I encourage you to subscribe to our reporting here.
Greetings!
It’s not too often that a controlling shareholder can’t get their way at a public company. But an attempt by the two biggest investors in Grindr to take the gay dating and hookup app private went south on Monday. The reason? They didn’t come up with the money. It’s the latest chapter in a long-running corporate finance saga surrounding Grindr, which is hardly the biggest or most important internet company in the world but punches above its weight for drama and business-school case studies.
Last month the biggest investor, billionaire Singaporean hedge funder Raymond Zage and Grindr’s second-biggest shareholder, James Lu, proposed taking Grindr private in a buyout valuing the firm at more than $3 billion. Zage and Lu, who between them own more than 60% of the outstanding shares, got a preliminary commitment from lenders for $1 billion to finance the deal. But on Monday, a three-person special committee of Grindr’s board said it was no longer considering the proposal, citing “continued uncertainty as to the financing for the proposal.”
Grindr’s stock price fell 12% on Monday on the news, to $12.16, near a one-year low, even after a strong third-quarter earnings report a couple weeks ago. For more background, check out this story I wrote earlier this month. What are the latest business lessons we can learn (or relearn) from the Grindr saga?
One, there can be serious consequences if a company’s largest shareholders pledge lots of stock to lenders. Zage and Lu had pledged nearly their entire stakes as collateral for loans, a legacy of their takeover of the company a few years ago. While securities filings disclosed this, a short-selling report pointing it out sent Grindr’s stock price plunging in September and October. Lu sold tens of millions of dollars of his stake in October, after facing margin calls due to the company’s falling stock price.
Two, it can be easy for Wall Street to turn against companies that have relatively small public floats. Grindr is a perfect example: Because of the amount held by Zage, Lu and other insiders, only about 18% of Grindr’s shares are available for trading, according to FactSet, and about a third of those shares have been shorted. That causes investors to pause before buying the stock—the headaches often aren’t worth it, even if the business is performing well.
Grindr seems poised to stay publicly traded, at least for now. The last two months have been a significant distraction. The company’s next challenge will be winning back trust.
Zoom’s Cash Machine
Videoconferencing firm Zoom Communications is barely growing anymore. But it turns half of every dollar of revenue it brings in the door into pure cash, highlighting what a great business it has turned out to be, at least for private equity types.
Zoom reported on Monday that its third-quarter revenue rose just 4.4% to $1.2 billion. But free cash flow rose 34% to $614.3 million, bringing it for the fiscal year so far to $1.585 billion. Zoom has a roughly $24 billion market capitalization but $8 billion in cash on the balance sheet. With its bountiful free cash flow, it seems an ideal candidate for a buyout. Any takers?—Martin Peers
In Other News
• OpenAI launched a new shopping research feature Monday as part of its broader strategy of making ChatGPT into a destination for online shopping.
• The Trump administration is considering approving sales of Nvidia’s H200 AI chips to China, according to two people familiar with the discussions.
• Amazon said it plans to spend up to $50 billion to build new AI data centers for its U.S. government cloud customers. The centers will include almost 1.3 gigawatts of new computing capacity.
Today on The Information’s TITV
Catch today’s episode of TITV where we talked with Gil Luria of DA Davidson and Andrew McAfee of Workhelix about whether AI is replacing jobs yet.
Recommended Newsletter
Start your day with Applied AI, the newsletter from The Information that uncovers how leading businesses are leveraging AI to automate tasks across the board. Subscribe now for free to get it delivered straight to your inbox twice a week.
Join The Information’s Kevin McLaughlin and executives from Atlassian and Eliza for an inside look at how companies are successfully driving AI adoption and seeing real results.
