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Comment by kgwgk | Hacker News Reader

“When applying our average revenue per WeWork membership for the six months ended June 30, 2019 to our potential member population of 149 million people in our existing 111 cities, we estimate an addressable market opportunity of $945 billion. Among our total potential member population of approximately 255 million people across our 280 target cities globally, we estimate an addressable market opportunity of $1.6 trillion.

“(...) By applying the average employee occupancy costs to our potential member population of 149 million people in our existing 111 cities, we estimate a total opportunity of $1.7 trillion. Among the approximately 255 million potential members across our 280 target cities globally, we estimate a total opportunity of $3.0 trillion.”

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Is this how these things are usually calculated?

Does a watch manufacturer say that there are approximately 255 million left arms which we can reach by post, and since our watches sell for $1000 that's a $255B opportunity?

> Is this how these things are usually calculated?

Yes, it’s a run-of-the-mill back-of-the-envelope TAM [1] estimate. The point of this number isn’t to value the company. It’s to identify obvious limits to scaling.

[1] https://en.m.wikipedia.org/wiki/Total_addressable_market

> It’s to identify obvious limits to scaling.

In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.

It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.

Even a nobody likes me knows to take TAM estimates with a grain of salt, so I imagine experienced investors know too.

I suspect if you added up all the TAM estimates for all the industries on Earth you'd get a number somewhere north of 10x the actual total value of the markets on Earth. I feel I'm being conservative; I really wanted to say 50x, but chickened out at the last minute before posting.

Thanks.

But isn't making a claim that it's plausible that every square inch of office space in every modern city will be managed by WeWork actually doing the opposite of identifying some of the obvious limits to scaling?

I suppose some of this is addressed elsewhere under other sections, and the fact that it's called the Total Addressable Market explains a lot, but it does seem remarkably arbitrary and to be of very little value.

They aren't making that claim though.

They are just doing simple back of the envelope math using their current metrics, but in word form.

No one is suggesting that those numbers will actually be achieved.

You're right, the mistake I was making was not realising that the calculation was for leased office space as an entire industry, rather than as their plausible potential customer base.

Since their actual market is more niche (in practice it seems to be satellite offices, startups and remote workers) than general commercial office space, I'd still propose that it's significantly overstated, but thanks for the correction regardless.

In this context, what is the value of stating these numbers?

any sane watch manufacturer would mention that people don't have a limit of owning one watch

Sheesh!

I think I found a company, label it tech and mention in the prospectus my potential customership of 8 billion people.

Do investors actually buy into such bullshit?

Investors seeking to move their money out of unstable countries won’t mind

Saudi sovereign wealth fund —> SoftBank Vision Fund —> WeWork

I do wonder why Silicon Valley workers tolerate this given the regime’s track record on... well... everything. Up in arms over Maven or Dragonfly but no one seems to care that this is part of the regime’s plan to sustain itself when the oil runs out.

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