Really? How is this sort of shenanigan allowed?
This alone should be a massive turn-off for investors, nevermind this kind of personal eccentricity that makes this absolutely insane.
Which situation you are in, and whether shareholders would be turned off by majority ownership, is context specific.
For example, I think SpaceX would be a less attractive stock if there were only minority stockholders, and having Elon as the majority holder makes it more likely to succeed at going interplanetary, rather than just milking a traditional orbital business model.
If your investment thesis depends on a bold bet like that, a single majority shareholder you trust would be a comfort.
I agree with your larger point though.
And that's at best. But I think a collapse is more likely. Uber may also be losing a ton of money, but they have enormous pricing power over their major raw materials, namely individual drivers and their cars. But WeWork is renting space from hard-bitten landlords run by professionals, and those companies have plenty of alternative tenants if they don't like WeWork's terms. At some point I think there's going to be a mismatch between their short-term income structure and their long-term obligations to the space owners, and then it's going to be a big old mess.
Comparatively, the money WeWork's customers spend on WeWorks would be considered opex, for those whos budgets are big enough for the distinction to be material.
Is WeWorks hacking corporate America's budgeting practices, doing what AWS did for rack space?
With something like WeWork I can just come in no matter if I have a 10 or 100 person team.
Were I work we have moved the HQ 3 times in 4 years with substantial cost. We now have a couple of international locations and all of them are under WeWorks roofs. We are glad to not be dealing with the office burden abroad.
Up until 100 employees in the same location, I'd chose WeWork any day and concentrate on my product. I have been to lots of CoWork spaces, they all don't work long-term and are only good for fairly small teams. WeWork on the other hand is also good for bigger teams.
If a recession hits, or even if there's just a glut of rental office space because other players overinvest, then WeWork may not be able to fill their spaces, which they've mostly committed to on long-term leases. Their costs are fixed in the short term, but their revenue could be highly variable.
It's true that in the longer term the market for large blocks of space follows economic cycles, so if they are looking to expand during a recession, they can get a good price. But why would they do that? Since their business model is all about flexibility, they will be harder hit by recessions than both property owners and other people who need large blocks of space.
WeWork on the other hand seems like they have a solid product?
Maybe they are not profitable, and maybe the business model makes no sense and will never be profitable. In that sense then maybe you are right?
But in the mean time, the product they are selling works for their customers and there is high demand at the current price point (which is already insane imo).
1. Start a shiny business that attracts customers. Never mind that you're losing money per customer.
2. Get some big investors. You are now valued at 2-digit-billion dollars.
3. Talk about IPO. The general investing public has heard about your shiny service/product because the news talks about how shiny and hip you are (are MSNBC just idiots so easily distracted?) and the public are about to bite!
4. IPO. Big investors cash out. Mom-and-Pop investors lose money.
5. Profit! For you and your big investors.
I see similar talks about Uber, and yet I can't imagine such a product failing due to the number of happy customers.
This is a stock sale. The "mom and pop investors" buy into it with full knowledge of what they're buying. It might be a bad investment, but I don't see where the fraud comes in? I'm not convinced that WeWork is a sustainable business which is why I won't invest in it. Others might disagree.. we'll find out down the road who is right.
And no, mom-and-pop investors don't have full knowledge, not like insiders do. The fraud would come in if the insiders are being anything less than perfectly honest about current condition, future prospects, or their expectations.
Of course, this might not rise to the level of criminal fraud. But when you look at something like Groupon, which fell 90% quite quickly, and which had insiders taking money out early on, it's reasonable to suspect that at least some insiders knew what they were selling to the public was dubious, but did it anyhow.
Groupon is still a functioning business, of course, with something like $2bn/year in revenue. And WeWork might end up a functioning business as well, just like its competitors. But I think its best case is to end up like those competitors, which all have thin margins and look like regular old businesses, not profit fountains like Google, etc.
I suspect either due-diligence caught it and decided to live with it after some negotiation, or they missed it - oops!
In that case wouldn't he simply have to divulge that fact early on in the decision-making process? "Guys, maybe I should recuse myself on this decision since I'm in a bit of a conflict..."
Investors gave Adam virtually unchecked power over their capital.