WeWork to List Shares on Nasdaq, Make Governance Changes
wsj.comI can guess (however unlikely it may be) how Uber might some day make money through its monopoly power or use of autonomous cars and justify its valuation. I just can't imagine how WeWork could continue growing and turn a profit if it can't do it in this booming economy. The freelancers and small businesses that use it are likely the first to end their memberships and work from home or coffee shops.
From what I've read, the WeWork locations in their mature markets are profitable, but they've been investing heavily in new/immature markets. Despite We's bizarre straddle between being a real estate company and trying to be a tech company, it's a fairly standard growth play: burn money now in order to gain more market share over time.
If they wanted to, they could slow down on new purchases/rentals/construction and likely become profitable without too much trouble. But that would of course be at the expense of growth.
Not saying they're a great company or that they deserve a crazy high valuation, but suggesting that they're unprofitable because they have a bad business model is missing the whole picture.
Perhaps the whole picture might also include their astronomical lease obligations..
If they are going to have to shut down all these sites the second the market slows down (or indeed as soon as the obligations are due), perhaps one might argue it was imprudent to open them to begin with.
Any marketing benefit gained by being "everywhere" is surely undone when they have to publicly shutter a large portion of their locations.
Not disputing, but could you please provide a link or two that argues they are profitable in existing markets? I’ve only looked at their S-1, and there wasn’t hard information (e.g. single building operating statements) for me to conclude this.
The difference lies in their enormous existing lease obligations. Most corporate leases are for 10 years and they have very large payments that must be made, so it's not like they can just easily scale back in the loss-making locations.
Their income stream is month-to-month and can disappear quickly in an economic slowdown. Their lease liabilities have a timescale of years.
As an ex-employee I am indifferent to WW’s success or failure, but to set a few things straight, very few of their members are on month to month deals. The larger deals they do for corporates are often multi-year commitments.
As long as a sophisticated large corporate sees a net benefit of being in a wework they will stay.
As an analogy, everyone knows running servers on AWS is more expensive per unit of compute than running your own hardware, however, there is a genuine value for a company to hand off the running of an office space (and the capital investment on buildout) to a third party in exchange for predictable monthly opex.
That's a myth, most of their revenues come from large companies building satellite offices but those are also the first to go in a recession.
The freelancers and small businesses that use it are likely the first to end their memberships and work from home or coffee shops.
Coffee shops are great places to get work done for a few hours. But stay in one for a whole day and you start to get weird looks unless you are buying coffee continuously. And once you buy enough $5 coffees to justify sitting there for a day, you might as well be in a WeWork.
Working from home simply isn't an option for many people. If you live in a downtown area, you likely don't have the space for a proper setup. Even if you do, many people don't like working alone. Also, if you want multiple employees working together in person, an office starts to make a lot more sense.
So I actually think the freelancers and small businesses who remain in business are the last ones to leave. If you chose to be in WeWork in the first place, you probably like it, and the cost of office space there is negligible compared to payroll. The first ones to leave are the corporate customers who cut head counts. Small companies tend to have less waste, so it's hard to cut people in a downturn. Big corporations, where the people making the firing decisions don't actually know the people being fired personally, have easier time laying people off during recessions.
If you live in a downtown area, you likely don't have the space for a proper setup.
When the money's tight, being short on space doesn't necessarily keep you from doing it anyway. Hot desking at WeWork would cost more than half my rent.
It can easily turn a profit as long as it stops growing. Somehow they managed to con the building owners into leasing to shell companies which means they can break any of their leases at any time by shutting down the shells. As such once the growth phase ends they will shut all the unprofitable offices and can hum along as 3% growth real eastate company and feed the founders heirs forever or at least till the leases expire.
Maybe large corporations will find their services useful in future.
Might be that the concept of huge corporate campus won’t be so popular in future and companies start looking at more flexible solutions.
I don't understand the hype around WeWork. Nothing it does is innovative or different. Its strategy and product can be easily replicated by anyone with enough cash to burn. It seems less like a business and more like a rent-seeking scam to loot money from investors until they've sold to the greatest fool they can find.
I think the very fact that we’re talking about it proves they are innovative, but I’d argue the innovation isn’t quite what they’d like to think it is.
This market is a tough one, with much competition. The fact we’re discussing this at all shows that they’ve managed to grow to become a recognisable name. Even if that’s just because of tons of VC cash, at least the VCs thought them worthy of investment.
Why? I think it’s a cultural change. Existing players market to companies, WeWork markets essentially to employees, it markets to the person who actually goes into the office and sits there every day, rather than to the balance sheet.
With their flexibility on leases, they pass the bar of cheap enough for the business considerations and do well enough for people’s minds, but with the trendy design, nice kitchens, beer on tap, plants, and effortless meeting room AV they appeal to people’s hearts. No one else does this. Is it worth it? Maybe, maybe not, we’ll find out in the long term.
This is innovative, and this creates meaningful hype. I believe they’ve got more right than you may be giving them credit for. Is it a long term business? Probably not this alone, there are loads of issues with WeWork as a business. I wouldn’t touch the stock.
> speeds up preparations for its hotly anticipated initial public offering in the face of tepid interest from investors.
God, tell me the editor was asleep. Tell me how it can both be “hotly anticipated” yet with “tepid interest.”
Brain hurts.
I think it makes perfect sense. I'm in both categories. I excited for it because it's probably going to be the biggest flop of the year (more than Uber/Lyft). Tepid interest from people buying into the IPO.
What he meant to say: "We can't wait to see the big public epic fail".
Hotly anticipated by people investing in popcorn futures.
Maybe hotly anticipated by laypeople/news, and tepid interest by the people actually putting money where their mouth is? I feel like I'm giving that sentence too much credit though. It really is an oxymoron.
hotly anticipated by the tech media and short sellers
WeWork are quite expensive - enough that startups will get their own offices when they reach some stability. So I’m left wondering, WeWork charge a lot and in turn they pay a huge premium for their building leases. How are they NOT making money?
They're a bad investment because they're riddled with debt. They've taken out long-term leases on properties that they're liable for. In a downturn their customers will probably vanish leaving them with their liabilities. Plus, they don't really have a moat. So all in all, it seems like the founder is doing anything possible to cash out before the house of cards comes crashing down.
Because they are expanding. They claim their mature locations are making money, which makes sense.
"Sweeping changes" is mentioned in the first line of the article but nowhere else. What exactly are they planning to change?
Converting a capital intensive and inflexible office lease commitment to monthly payments and the ability to scale is very useful to many companies that manage their real estate prudently.
WW could be successful without all the rah-rah about changing the world. Like Uber, I’m sure they could afford to shed a few thousand employees (who were hired for growth) and continue to run a more sustainable business.
Sustainable as in much more low key and not trying to grow a lot? How would that sit with investors? No less Softbank’s $9B investment into it and 30% ownership.
Sustainable in the sense of better managing the 500+ locations they’ve already got and easing off the ridiculous growth for a while.
I don’t see Softbank have the option to continue feeding capital into the company so they might need to reassess their end-game with this investment. The alternative is possibly a spectacular crash into bankruptcy.
> We waited an unusually long time to decide on an exchange.
Sentences like these make skimming pretty hard. It made me re-read the entire article because I was confused about the who is the author.
From a point of view of a regular human, how is WeWork good for me?
I'm generally opposed to 1 company to "rule them all", and I would like to see giants to be broken down.
In case of say, Amazon, at the very least being so huge may allow (arguably) for cheaper prices and almost everything in one place, delivered conveniently. suppose that's true.
How one company owning a lot of real estate is good for me? The way I see it, if they are successful, they will spend less while charging more, even further accumulating wealth among the smaller amount of ppl. I don't see how it's good for most of us.
They aren't developing real estate market. They aren't creating new ways of building more efficiently. They aren't doing anything other than using huge sums of money to generate more money.
Just as AWS made it easy to spin up a server, WeWork is making it easy to spin up a desk. This matters for companies with teams scattered around the world. If there's a WeWork in a certain city, it's super easy for us to get our team onboarded there - the brand is consistent, we know our people are going to be comfortable and happy.
Say what you will about their ridiculous financials, the product itself is good.
Being able to rent a desk is very convenient, true.
But I don't think comparison to aws is fair. AWS can be scaled.
Renting out part of the office won't benefit in any way from the same company having offices in multiple cities.
Do you think, one landlord, owning offices in 10 cities be more efficient (better) than 10 separate landlords?
Thanks for the thought. I'm not concerned with the efficiency of their business - I'm concerned with the efficiency of _my_ company. WeWork has removed a big headache for us.
Ive only been to 2 WeWork facilities but both were dirty and loud. Im not sure about other cities but the product was very underwhelming/disappointing for the price.
> They aren't doing anything other than using huge sums of money to generate more money.
Isn't that the function of _any_ company in capitalism? (Excluding, possibly, non-profits)
No. This is rent seeking.
I think you're being too literal.
I was referring to a mechanism of taking in investment or capital to generate a return on that investment through some positive generation process (prototypical example: manufacturing.)
But you're technically right: if you're just using money to steal / suck resources away from somewhere else, with no net positive or even a net negative on the whole, then I agree with you.
Not necessarily.
Car manufacturers for example. The byproduct of them making money is the fact that cars becoming safer, more efficient, etc. Ultimately, it makes my life better.
I mean. I understand what WeWork is doing, they trying to make money and it's not against the law. All I'm saying is they aren't doing anything good for a regular person, and possibly even will hurt in the long run.
I think that's why ppl hate on them. At least I think that's why I don't root for them to succeed. I just don't see why
Congratulations WeWork! Remember: Haters gonna hate.
Please come back and post your position on IPO day so we can all have a good laugh.
In their defense, FB IPO was an epic fail that eventually turned out to be a good price
I never understood why people hate the successful.
Anyone can build the appearance of a successful company by taking out a lot of debt and burning it slowly. Most people are hating because it doesn’t seem sustainable.
Yes but what about Uber?
What about it? I see about as much hate for Uber as WeWork. The difference is that WeWork’s risk profile seems higher.
Dont love them to much, it will blur your vision.