Morning Markets: Vaping unicorn JUUL is dealing with regulatory pressure, competition, and bad press. The result? Job cuts.
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JUUL, a well-funded unicorn in the vaping space, is cutting 650 jobs according to the Wall Street Journal. The cuts are not a surprise. According to the Journal, the layoffs work out to about a 1/6th reduction in its workforce.
The staffing cuts are not the first we’ve seen from popular unicorns, or high-growth private companies worth $1 billion or more. Uber, though recently public, has undergone several rounds of staffing cuts in the last year. WeWork is expected to excise a large percentage of its employee base after its failed IPO. Fair has also cut staff. Wag, not quite a unicorn, has also laid off workers.
The cuts come as the private market turns toward profitability over growth; while the public markets are fomenting at the moment for new stock market records, and CNBC reporting that greed has once again overtaken fear, private investors are focused on gearing up their best bets for IPOs, changing the game from its former, Vision Fund-flavored bent.
JUUL is controversial. While its products are useful for helping adult smokers switch to a less dangerous method of nicotine ingestion, they have also proved popular with teenagers, causing fear amongst parents who would prefer their children consume fewer substances. That concern coupled with a vaping scare involving a different sort of combustible has sharpened the public sentiment against vaping. JUUL has also been accused of marketing to teenagers, putting it squarely in the middle of the storm.
To combat teenage vaping, JUUL is (under pressure) cutting certain vaping flavors, something bound to ding its profitability.
The Money Behind JUUL
As Crunchbase News has reported, JUUL is a company with a time-tested and lucrative business model. Or less politely put, the company’s ability to sell addicting products is as effective as it probably hoped. But its ability to generate gross profit has attracted investors of all sorts:
Nearly a year ago, Juul announced that Altria paid $12.8 billion for a 35 percent stake in the e-cigarette company. Juul knew that having the maker of Marlboro cigarettes be a large stakeholder in a company meant to help adult smokers quit cigarettes was controversial, and it released a statement saying that. But a $12.8 billion investment was huge, and it propelled Juul’s valuation to some $38 billion, according to Bloomberg.
A lot has happened since the investment and the criticism surrounding Juul has intensified. The company’s CEO stepped down and it announced that it would stop selling the fruity, creme, and mint flavored pods in the U.S. and only sell tobacco and menthol flavors. It’s unclear what percent of its sales are driven by fruit (e.g. mango), creme and mint flavored pods, but those have shown to be popular among high schoolers.
Amid the drama, Altria wrote down $4.5 billion of its investment, according to TechCrunch.
Juul, founded in 2015, grew astronomically fast. It seems to be unraveling at a similar pace.
Illustration: Dom Guzman