WeWork revenue, and losses, surge in first release of results
reuters.com
reuters.com
They buy long term leases and sell short term leases, which they can mark up for 1) the optionality provided with a short term lease 2) the optionality to rent just as much as you need 3) additional amenities provided 4) and potentially to respond to local market changes (which aren't reflected in the long term lease.)
That's actually pretty straight forward, and it remains to be seen if it's profitable.
And yet, I feel I'm missing something. That there is some sneaky real estate arbitrage (or maybe a tax effect) that turns this from risky to genius.
Or maybe I'm just hoping there is.
There's something to say for stodgy.
I assume the the draw of selling a 10-20 year lease is that it mitigates the business cycle risk for the property owner (there are other advantages but this would seem to be the main one). This allows the building owner to cut prices for the long-term lease relative to a short-term one.
Thus, when the economy is booming and businesses need space, WeWork looks fantastic--real estate arbitrage! ... And then when the economy goes into a recession, WeWork is stuck with a long-term lease that you can't exit and a dearth of subtenants that destroys your revenue stream.
WeWork has only experienced the former on its short life so far. I'm interested to see how it manages the latter.
Especially when “WeWork said it has reduced capital expenditures through steps like a 20 percent cut in the cost per desk, or space one member occupies.” That sounds like a typical end of life trend for failing startups, reduce the value and quality of your product to desperately try to stem losses.
I work remotely for a startup and can get reimbursed for coworking space if we want it, but I’ve never been tempted. Why work in a noisy, distraction filled shared space when I can be far more productive working at home alone, with zero commute?
Does anyone know where the original filings can be found? Is this in EDGAR somewhere (I'm outside the US)?
https://www.businesswire.com/news/home/20180802005853/en/WeW...
These perks are meant for people with families.
Lots of people have these problems. It's super common because the idea of working from home and being unavailable is inherently pretty odd for those who don't quite get how context-switching is an extreme productivity killer.
I do feel that most coworking spaces, WeWork included, get the entire concept fundamentally wrong. They all market their "networking" opportunities and "hip" work spaces.
Do serious workers eveb want that? All I need is a quiet office where I'm left alone to work in a private cabin. I couldn't care less for the artisanal coffee or funky furniture.
I do hope there is a coworking competitor that gives me a no nonsense, quiet place to work in
We have a good idea what a "serious" WeWork looks like already: Regus. WeWork occupies what seems to be a bit of a weird niche: they are almost as casual as taking your laptop to Starbucks and they seem to go out of their way to provide distractions from work too, whereas the Regus experience is just like having a more-expensive version of a real office. It's a private area, you have the key, dedicated network connectivity, support from "the building" when you need it. I see companies use Regus to bootstrap themselves into a new city while they hunt for real space for example, and Regus seems happy with that as a use case, whereas WeWork would like you to stay there.
Right now the gig economy is very fashionable and WeWork is riding that trend but this is too tied up with both fashion and politics to make the future of it very clear. Are people really going to want to spend their entire careers in a giant Starbucks, what happens if the tax code changes to make freelancing unattractive (e.g. IR35 in the UK)? What if WeWork becomes the corporate behemoth and people do go back to actually hip independent coffee shops, or coop work spaces? What if some technological development starts to favour large companies again? Armies of freelancers are fine if you are building websites but could you make a biotech or a space firm or green energy firm or whatever out of freelancers in cow-orking spaces? I dunno.
I tried my first WeWork here in London a month ago, and this is exactly how it felt to me. Maybe that mixed with a college campus vibe. Definitely not a place to go if you want to get serious work done.
For the usual startup, WeWork is way too expensive.
Why do you say that? What are the alternatives that startups have?
Here in Tel Aviv at least, if you're a 5-10 person startup, you can either take the painful, long process of renting an office, which is both expensive in its own right, takes a lot of your time, and has a serious issue - you don't know what size you need!
The alternative is to go to WeWork, where you can start working almost immediately, have everything taken care of for you without thinking, and have peace of mind that you can scale to more offices within the WeWork as necessary (unless it's at capacity, but there're usually vacancies).
I'm not saying this necessarily a good business model for WeWork, but for startups, it's a great deal.
Beyond 10 people, most startups here realistically don't have that explosive growth in employees, so you can rent an office 3x your current size, and still come out cheaper than WeWork. In the mean-time you can sublet the empty space to other smaller startups on a quarterly basis until you need it yourself.
I realize that in other cities, the situation might be a different one, but at least in Berlin there are very few startups that have the luxury to of a "fuck profitability"/explosive growth strategy, which are realistically the ones that can afford a WeWork for more than a few months.
/unsponsored advert
I think the larger coworking spaces will have to excel on their consistency, ease of getting setup and cutting of costs from their economy of scale without becoming a RyanAir seat shrinking company. Whilst also not feeling like a traditional office.
The uses cases for "5-10 person company" and "gig economy freelancer hanging out at the WeWork in hope that some networking will lead to a big break" are different, I'll wager.
I think targeting co-working spaces at people interested in "networking opportunities" increases profitability, because they are much more likely to accept open floor plans.
> I do hope there is a coworking competitor that gives me a no nonsense, quiet place to work in
It has been available for ages and is called Public Library.
This in addition to loud conversations and general poor behaviour from other library users which is rarely challenged by staff.
One reason is to establish a routine where I wake up, put on my work costume, leave the house, and go to a place where I shall be productive each day. Normal office "hi, how are ya"s would probably add to the authenticity, but constant chatter would be distracting.
The other reason is to have a professional environment to invite clients. If the place is full of people lounging in beanbag chairs, sipping coffee and yakking, then I know a nice coffee shop that would be a lot cheaper.
1. Vanity: Impress clients with a cool lobby / conference room (WeWork's free beer and ping-pong tables often does the job well, especially when folks are used to cubicles)
2. Focus: A space to sit quietly without distraction; open office space totally fails here, and I'm pretty people listen to music while working in these environments solely to cancel out the noise of others.
3. Collaboration: Having smart people around you makes you smarter. This work in a traditional office, but I've been to a few WeWorks where I was pretty uninspired with the people around me. It was not that they were dumb, but that they worked in industries so far off from my own (fashion v. law) that we had almost nothing to talk about.
I've run my startup for quite some time. I normally rent fancy conference rooms at hourly rates or go to trendy restaurants for #1 (they're expensive, but better/cheaper than getting a monthly plan). I learned to focus at home for #2 (takes some time to get used to). By far, #3 is the hardest, but literally every person I hired was in a different state or abroad, so having a physical office wouldn't have helped unless I forced them to move.
Also, when the execs of a money losing company is wasting time with vegan activism rather than turning a profit, I suspect it's future isn't too bright.
And remember, for real estate several billions is quite small potatoes. Fifty or less not too large office buildings sets you back a billion. The market (at least prime European that I see) is overly competitive right now with markets accepting gross yields of 4% and funds making target yields by increasing leverage. Interest rates come up, valuations come down, unless you've got the cashflow locked in via long leases. That last part of the game, I think WeWork will lack. They surf the economic cycle, instead of evening it out long leases.
Edit: in reading other comments they are not owning buildings but doing term swaps. In that case they are on the receiving end of a whole lot of risk. 84% occupancy is fine, but in this market that is not too high. Most commercial funds will be a lot higher right now and they have the incentives on investments better aligned with longer contracts. How WeWork thinks to weather an economic downturn beats me.
In London, you only get one skyscraper for 1 billion.
If it happens in the next 3-5 years, it’ll probably be catastrophic for them.
The question really boils down to unit profitability. If their 'already built out' offices are positive cash-flow businesses, than all this working capital expense makes sense. If not, no.
I don't really think there's much of a platform effect, rather, brand, and that people know they can go somewhere and get what they expect for their offer.
It's a decent concept given the degree of churn in businesses these days, and everyone wants at least a decent place to hang their hat during the day.
But it's also easily subject to pomp and hype.
Only the accountants really know :)
WeWork turned out to be more expensive than ad-hoc desks in other cities, though.
Yes, that's one of their primary, explicit selling points.
Is that really worth a lot to their clients that they will pay a premium for it?
Yes, that's one of the major reasons people use WeWork instead of local office space rentals.
A lot of it also seems to be the typical startup hype. I've seen many companies choose WeWork even though they only have 1 single static office space because it's the hip choice, even though they could easily spend half the money for twice the space and privacy.
> Yes, that's one of the major reasons people use WeWork instead of local office space rentals.
Perhaps another reason is that WeWork charges fees which are too low to cover all their expenses, and local competitors do not.
Having been exposed to some of the inane bullshit that you get from coworking spaces in some countries, having a known-good factor could be very valuable.
We've had police turn up to the coworking space in one country and inform us that it was an unlawful occupancy. The police gave us until the end of the day to get all our stuff out. This was while we had important partners/clients in for meetings. Moving our 20-something people in that office out within a few hours was a nightmare, and basically killed a week in productivity, not to mention lost business opportunities/etc.
One coworking space had hundreds of people, but only a 100MBit residential internet service hooked up to a bunch of home-grade wifi access points, and eeeeeveryone was running torrents, and the coworking space didn't care to police their network at all (not that they could, they didn't have any IT staff).
We have people in a WeWork space in one country, and while it might not be fantastic, there's slightly less bullshit there than in other locations.
VCs, probably not familiar with the world of real estate, aren't able to see this. They think they're investing in something new, but it's really the same old stuff in a new package that they're paying a premium for.
Or is it like movie theater, where it isn't polite for 1 early person to hold 5 seats?