WeWork considers IPO valuation of as low as $10B

His conclusion: "But now WeWork seems to be facing the traditional tradeoff: Stay private, keep control, but lose access to billions of dollars of funding, or go public, raise unlimited money, and have to act normal. If it does either of those things, that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could stay private without giving up the benefits of being public, or they could go public without taking on the burdens of being public. Now they might have to make hard choices again."

"From my perspective, this seems like an optimistic story, where WeWork generates pre-tax operating income of 10.07 billion on revenues of $80.5 billion in 2029, generating a 26.61% return on capital on intermediate capital investments. Allowing for a starting cost of capital of about 8%, the resulting value for the operating assets is about $29.5 billion, but before you decide to put all your money in WeWork, there are two barriers to overcome:

Possibility of failure: The debt load that WeWork carries makes its susceptible to economic downturns and shocks in the real estate market, and the cost of capital, a going concern measure of risk, is incapable of capturing the risk of failure embedded in the business model. I will assume a 20% chance of failure in my valuation, and if it does occur, that the firm will have to sell its holdings for 60% of fair value.

Debt load: As I noted in the last section, the company has accumulated a debt load, including lease commitments, of $23.8 billion.

Adjusting for these, the resulting value of equity is $13.75 billion, and with my preliminary assessment of shares outstanding, translates into a value per share of about $26/share."

Highly recommended read for those that haven't already: http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or...

I feel like the real news is that rather than drop the IPO in the face of severe disillusion they(SoftBank) are actually trying to recoup some of their losses while cutting the company down, rather than comfortably pursuing the valuation that they previously seemed to push as being a reasonable possibility.

Economically they’re more like a b&m retailer, where the shelf space being leased is for workers, not mannequins and clothes.

Their reach to individual pockets is orders of magnitude smaller. Big clients can abandon them as a supplier in a few weeks time to setup a new office.

WeWork does not have the long term emotional buy-in potential like an Apple or Facebook. It’s a business to business business. Not going to hook a billion individual users on their gadgets and services.

There’s a non-zero chance the property market implodes, and shifts to remote workers seem very likely to expand. Still need phones and software. Not downtown offices with cucumber water.

I feel like a scammer on the corner is getting increasingly desperate shouting lower numbers at me as I walk away. "No how about just $5 then and I'll read your palm!"

People used to have shame. This is so weird.

Theres been much hand wringing about the sky high valuations, and its not really surprise when push comes to shove, those valuations don't play out. How a $65 billion potential valuation (or $47bn 'actual') becomes a $10bn float will be a write up I look forward to though.

This has probably been the most criticised IPO I've heard of in recent times. Interesting that the market is actually not allowing them to sail right through on their own terms, it's as if all the ridicule actually makes people think about whether to buy it.

[1] https://www.crunchbase.com/organization/wework/funding_round...

Have there been other examples of companies getting gutted by their IPO efforts?

(Another interpretation would be that they are a real estate company trying to pass for a tech company and everyone called their bluff).

Don't trust this.

So, that should generate up to 100M per month and well over a billion a year. They're reported revenues are actually closer to 2 billion. So, obviously they either make way more per user or I missed something here. Either way, this is apparently generating quite nice revenue.

They have cost of course but it does not sound like a horrible business. They charge a premium to their users and from what I've seen in various locations in Berlin and SFO, they tend to cram in a lot of people in their locations and maximize the usage of the spaces they lease. So, I'd say it's safe to say that each We Work location ought to be profitable with some nice margins.

From what I understand the reason they are burning cash is simply rapid growth. They are investing every penny they can get in more locations. Based on all of this. A valuation of 10B for a company that seems on track to grow to billions in profit per year sounds on the low side to me. Also, with that kind of revenue, they should increasingly be able to fund growth from their own revenues.

Long term threats to WeWork's business exist of course. Fundamentally they don't have a lot of tech or intellectual property protecting them from competitors. Most of their competitive advantage simply comes from their scale and presumably optimized operations and access to capital.

I'd say it's similar to the hotel business which is also dominated by big chains of hotels. So, long term you'd expect more competition to emerge and a race to the bottom in terms of prices and operational cost. E.g. the Hilton group owns hundreds of hotels world wide with probably tens of thousands of beds and seems roughly comparable to wework in terms of number of buildings and revenue. The only difference is of course that they've been around for very long whereas WeWork has existed less than a decade. Fundamentally, if they mature a bit there's no good reason why they should not be massively profitable even if they get a bit of competition; which they currently only have from much smaller companies.

Who benefits when an IPO like this is underpriced? And who benefits when an IPO is overpriced?

Is there anyone incentivized to price an IPO accurately?

OTOH this reeks of desperation to "go public", and drop the hot potato on clueless investors while they 're still clueless and the market is still hot. Sounds sinister tbh

After they blaze the trail of providing a different approach to office space, is there a lot to stop competitors from doing the same thing?

Maybe there are more, but I only see two advantages they have over competitors: name recognition and economies of scale. And since leasing space is a large expense for tenants, it's natural for people to shop around a bit, making it a natural area for competition (and driving down margins).

WeWork's web site uses the word "revolutionary". Once the revolution has finished happening, what reason is there to believe that WeWork is going to own it? Obviously WeWork has a head start, but is there anything they've done that others can't do?

I wouldn't touch this one with a 10-foot pole.

I don't live in SV, and I'm just a software engineer making under 6 figures, but living comfortably all the same. I am ignorant about this "high finance" stuff - and honestly, I'm probably better for it; less stress and all. Not saying others shouldn't do it if that's what they like, just that I don't think it's for me.

Still - it seems ridiculous to me that a company self-valued at 10 billion, that there is something wrong with that? Maybe it's that I don't understand the financial history of historical tech companies, but it "feels" to me that such companies had no where near such value?

Part of the problem is that I can't think of such historical companies that were similar to WeWork or other "gig-style" companies - that were contemporary with, say, 1960s Fairchild or IBM? Those companies, and other similar companies of that era and into the 1980s (like Sun and SGI and Motorola and Intel, etc) - they were probably valued pretty highly (had they done such thing as an IPO - I don't think that was an available thing then, though - but they probably did have investors, and "ground-up" growth).

But they actually created products - physical things you could touch - as well as software (depending on the company); they weren't just using or repurposing existing tech on a large scale to solve a problem via a form of contract labor. Maybe a better model that would have been contemporary to those companies would be larger-scale construction contractors of the era? Were they ever valued in a similar manner?

To me - in my ignorance - it just seems like all of this exists to make a quick (overvalued) dollar and get out. I don't expect WeWork (or Lyft, Uber, etc) to be around in 20 years. We'll just continue to have this "churn" of companies, no loyalty or building of a base of customers that last ages and are almost "passed down" through generations.

Think about a company like IBM - arguably, it dates back to the late 19th century, but even discounting that, it is a computing and software company that is close to 100 years old; will any of today's "well known" tech companies be able to weather the years like IBM has (albeit with ups and downs, and with scandals and such)?

I can see Apple doing it - maybe. Perhaps Microsoft and probably Google. Amazon? I guess it could become akin to Sears or Montgomery Wards. Of course, no one probably thought of those older brands as having the staying power that they've shown, either - and there were plenty that one would have thought should have stayed around that didn't, and others that did that have imploded (ahem - Sears and Montgomery Wards - for instance).

I don't know if I am making my point clear enough - other than to say that it feels like these "companies" only exist - or were created - as "get rich schemes" for their creators and owners - not because those involved are really in it to make a "real difference" in the world (whether that would be a good or bad thing is debatable).

I guess I miss seeing purpose and organic growth, and a valuation in line with that, and heads or owners of such companies in it for a reason other than "getting rich and getting out".

> low