WeWork’s Back Is Against a Wall
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WeWork is probably legitimately in the $15B range, but SoftBank has really tied themselves in a knot with such a high valuation paired with the downside insurance. They‘re in for an 11-figure loss no matter what, because liquidation preferences and huge losses scare off any serious investors they could potentially find.
My guess is that WeWork ends up getting massively scaled back and sold to one of its smaller competitors for under a billion. They’re just way too overextended to have any value beyond the brand.
No: WeWork is a huge part of the "problem", with crazy org structure, self-dealing, a "cult of CEO" structure, and a business model that may not be that defensible. Softbank is an enabler.
Let's hope this his "peak hubris" and we're back to more sensible tech IPO attempts.
>Softbank is an enabler.
Enabler is true, but a lever requires both the rod and the fulcrum the rod pivots on. Without the enabler the lever would not exist.
Sounds just about par for the course of any SV startup, the only difference is, the critique seems consistent with outsiders criticizing SV startup IPOs, only the shoe is on the other foot and SV is criticizing outsiders for the very concepts it seems to promote within its own little bubble.
Not sure that it's a problem now though. Like Matt Levine suggested[0], WeWork did a lot of weird shit when they were private, but now they want public money, they need to behave more like a responsible company. It's kind of what's supposed to happen because of the disclosure, it's just that most of the time companies take care of governance issues before the S-1.
[0] https://www.bloomberg.com/opinion/articles/2019-09-13/we-is-...
Neumann's past behavior is still a problem.
In WeWork's case it's probably impossible to remove him both legally and because the whole company is built around his personality cult.
A company is something "we" build, it isn't something "one" builds, and this misunderstanding is causing a lot of social pains in the US right now.
It is deeply ironic that the company that elucidates this exact philosophy in its IPO is such a good example of a company built by “one.”
The problem with blitzscaling is, you can blitzscale into shit.
Even if not, they are in for some expensive lawsuits. It won't be a matter of simply walking away.
Why would landlords agree to this? "Hey guys, we'll sign a 25 year lease with you but only through a special purpose entity, so we back out at anytime and you can't do anything!". Given how choosy and patient commercial landlords are (eg. letting properties stay vacant for years to find the right tenant), why did they make an exception for wework?
If WeWork walks away, they leave behind nice offices that the landlord can rent out to another tenant with minimal investment beyond a few months lost rent (that could theoretically be recouped from WeWork).
I think most real estate folks learned their lessons in the dot-com bust. Lot's of folks were making stupid office space deals with tech companies in return for warrants, etc., which ended up being worth less than nothing.
Or did WeWork pay for refurbishing the building, so that, if they stop renting early, the building’s owner ends up with a better building than what it had before?
"FF&E are movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building or utilities. These items depreciate substantially but definitely are important costs to consider when valuing a company, especially in liquidation."
https://en.wikipedia.org/wiki/Furniture,_fixtures_and_equipm...
1. WeWork got away with this no matter how stupid those landlords were
2. Landlords actually signed out leases with no collateral considerations.
Though, to be honest, assuming WeWork doesn't actually stiff them on time the space was in active use and a bit of a margin... then I'm less disappointed, since the land lords will have lost very little actual value.
How do you arrive at that number?
I've seen comparisons to firms like IWR / Regus that imply a much lower number would be appropriate, even if WeWork was as profitable as those firms (which it isn't even remotely... it loses money hand over fist).
I still contend that most of the value of Uber is tied up in their brand, and I think the same is true of We. I’m not sure either of their operations are all that valuable.
What good is a brand if it's losing money?
A brand is only so useful if it's attached to a money fire.
Can you share a link/case study?
Kind of makes sense, but curious of how you developed your certainty. thnx
That may take a while, though. As an example, check what the “Commodore” brand went through.
https://en.wikipedia.org/wiki/Commodore_International#Demise:
”Commodore declared bankruptcy on April 29, 1994, and ceased to exist”
https://en.wikipedia.org/wiki/Commodore_International#Post-C.... :
“In late 2004, Tulip sold the Commodore trademarks to Yeahronimo Media Ventures for €22 million”
That’s 10 years after they went bankrupt, and the story didn’t even end there.
The amazing thing about WeWork is that the offices are fun. The one I know in SF is an OK place to hang out in the evening.
So I disagree it's just a brand. WeWork's product is better.
Maybe other temporary office companies will figure out how to make their offices fun, but I sort of doubt it. Companies rarely learn how to be more fun if they didn't start off that way. If WeWork is the only fun office space, they'll be hugely profitable someday.
You say that like it is a bad thing.
Also, it's not like a soulless or poorly configured office has negative effects only after 5pm. I know someone who's in a WeWork office temporarily - they love it, because the old space was poorly configured and amplified stress. Go figure, they've also mentioned they feel more productive and are getting more done.
But they're not they're any longer than they were before.
The competitive moat of being fun is built on huge subsidies of cheap capital being injected into the company during funding. It's a great venue because the costs are being subsidized by Softbank. Absent that subsidy they would be losing even more money than they already have and would either have to raise costs or lower quality.
Leaving work at 5 pm is the goal. Clock out. Go. Be free.
If I want a social club, it will be a separate organization. People staying at the office after hours is indicative of a toxic work culture (unless those folks always come in just as late on the other end of the workday). An effort to design a workplace as having the appearance of fun strikes me as disingenuous, at best, and at worst is a signal that the company is, as David Brent put it, "'aving a larf", at the expense of the investors.
Do not make your offices fun. Levity and gravitas can co-exist, but at work, the latter should have the greater weight.
> everyone will want to go home at 5 pm
.
> WeWork is that the offices are fun.
> is an OK place to hang out in the evening.
That is because outside of SV, work is where you work, not "hang out in the evening". And that is a good thing. Work-life balance is important for long term health
I've worked in a few WeWorks in NYC and I can emphatically say that is not the case in any of them. I don't doubt what you're saying, but that you're overestimating WeWork's product consistency. Most of my WeWork experiences have been more or less as soulless as a Regus office, only with "Hustle Hard" and "Always crunching" LED signs on the walls (I don't think those are the actual phrases but the real ones are so vacuous that I can't even remember them). On the plus side, their free coffee is excellent.
(even all this aside, if your office space is so fun that people don't want to leave it then I'm afraid your employees probably aren't all that productive. It is not a good thing to optimize for and if WeWork did they'd be turning off potential customers that live outside the SV bubble)
The moment HN hears about people staying past 5, everyone is up in arms, but... what if I'm staying past 5 so I can leave earlier the next day? Or past 5 for a week to get something done on time, and then taking off early for the next week when there's less to do? Personally, I'd prefer to do that in a nice office. It works for me, and for the company!
Even just in general. The effects of an office are far more than just 'do people stay past 5'. Even within a strict 9-5 work period, there is a huge amount of variance. If the office is depressing and soulless, it will have knock on effects on productivity and employee happiness. Again, good for the employees and the company.
But no, according to these comments an office people stay at longer is always evil.
You're projecting here. No-one is suggesting that being in the office at 5:01pm is a capital offence, but that workplaces with a consistent expectancy that you stay late (something many of us have an experience of) are a bad thing.
Well...they're (in my experience using them in the SE US) generic, quiet, generally well run. So, about as soulless as any office. Which was pretty much what I want.
WeWork's product is better.
Excepting Regus being profitable, having a better financial structure and management that's not a liability. But I understand that's not the only measure of 'better'.
The one I know in SF is an OK place to hang out in the evening.
I can't imagine anything I'd less like to do after work than hanging out drinking beer with a couple of dudebros with nowhere else to go after work than...work.
If WeWork is the only fun office space, they'll be hugely profitable someday.
I'm certain there's a market for work-space-as-life-substitute, but my own equally unsubstantiated feeling is that when people look for "workplace" they have one thing in mind, and when they think "fun", they're looking for something very, very different. At least for me, I don't want to try and work someplace where other people think it's for fun; fun is distracting.
I also think this is cool.
People in these places (not necessarily only WeWork) seem to be often interested in finding true purpose through work. It is a nice idea. Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect.
- I guess I'm from a previous batch of adults. The idea that we all have a "go home at 5" mentality is a fallacy. I don't check out promptly at 5 (or any other time) every day. None of my employees do. Very few people I know do (and the ones that do aren't in technology). Maybe there's that impression because we've got enough experience to have realized that "you are your work" is not the better alternative it's sometimes presented to be.
- Conversely, I think the issue with "the last batch of adults" is that they have been feed the idea of "don't go home at 5" as an ideal, even a requirement, and saying "I have a life outside of work that I want to maintain" is what people who don't have what it takes to succeed say. Sure...there's Jack Ma, but Jeff Bezos has breakfast with his kids every day and Larry Ellison still ditches Oracle to go sailing.
- Work, like sleep, is a large part of our life. Might as well be fulfilling in itself not by side effect. Work can (and should be) fulfilling. Work does not have to be the totality of fulfillment in life. If it is for you, mazel tov; but it's not a moral failing to say "nope".
I think there's a space in the market for a Regus-like company where the offices are 'Affordable Luxury' like Google offices, rather than 'Standard' which Regus provides.
You know, free food and soft drinks, ergonomic chairs, things like that.
The fact WeWork aren't making a profit, there are major governance problems, they have bad share structure, arbitrating long-term and short-term space leases has substantial downside potential, and the fact they're over-valued, mean I won't be investing of course.
This sounds like my worse nightmare. Fake “fun” at work. I don’t go to work to have fun. I go to work to get a paycheck.
And for startups inducing “fun” is just another way to get young gullible employees to work crazy hours for less than the market rate and the promise of equity that statistically won’t be worth anything.
Well said. I can understand "fun after work" (which I don't want as I prefer to go home). But what this all rant about "fun at work" ? all valley cult. Remember 'enjoying work', 'good work environment' are completely different than 'fun at work'.
This is so SV. In the real world CEOs aren’t so into paying a premium so that their employees can chug “free” brewskis at work. Going home at 5 and coming in at 9 is the norm.
Professionalism and separation are important to a work environment. It creates balance and a better culture with more productivity and satisfaction for everyone involved, especially those with families and other commitments that take up their evenings.
An office that's also a personal hangout is blurring the lines and always leads to problems.
But I would settle for wifi that always works (been working on this in our own little corner of WeWork for a couple of weeks) and coffee that was ready before 9. It would be great if we could just scan our badge at the printer.
I feel like they provide insufficient attention to the basics and really focus on what they think provides differentiation. Maybe in a year I will think differently but if I had to pick a different office space today I don't think I would be any more likely to rent a WeWork given their brand.
Who would buy a $10B brand? Much less a $30B one or whatever? The answer is almost exclusively "companies that already have a better brand than you do." Like, Apple could buy Uber, and then do its own ride-sharing service, and brand that ride-sharing service Uber... but they don't need to. They're Apple.
Any potential ride-sharing service that would like to build its own operations and the bootstrap itself to wider name recognition by buying Uber's brand won't be paying tens of billions of dollars.
So what's left? We and Uber need to reform their own operations to make money, which is the exact problem that nobody thinks they can do. What does their supposedly powerful brand get them?
Phillip Morris (a cigarette company) paid over $13BN for Kraft Foods, the vast majority of which was simply for the "Kraft" brand. And this was a long time ago.
Brands have enormous value.
Not really for that, no. In GAAP accounting "goodwill" is the generic term for "extraneous stuff that we can't quantify" i.e. the brand - the vast majority of the purchase price for Kraft was labled "goodwill" in the public accounting statements Phillip Morris issued.
There is a pretty good writeup on this in Naiomi Klein's book "No Logo"
WeWork is a bubble about to burst. Uber is still unknown. The value of both brands is complete speculation and highly inflated by hopes and dreams.
Wild.
No. Scale to the same PE ratio as IWG/Regus and knock off a fudge factor for poor governance. You’re lucky if it’s worth $1B. Or anything if you accept that the only legitimate reason to own it was to flip it to a sucker, and everyone knows about it now.
How is this not something material that should be disclosed as part of the initial filing?
The conversion price of the convertible debt is the only that the wasn't disclosed in teh S-1. It says it did convert to a G-1 prefered stock, but it's unclear what the value of those shares are.
It's on Page 115.
https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
>"Convertible Note and Warrant Agreements
In July 2018, we entered into an agreement for the issuance of a convertible note with SoftBank Group Corp. for a commitment in an aggregate amount of $1.0 billion (as amended in January 2019, the “2018 convertible note”). On August 31, 2018, we drew down on the full $1.0 billion commitment. On July 15, 2019, the 2018 convertible note was converted into 9,090,909 shares of Series G-1 preferred stock."
It might also explain why they have been so pushing so aggressively for an IPO this year.
Here's to hoping they go bust.
As for the name<->picture mapping, many many buildings have a log book for visitors, doesn't take too much work to associate a name with video of who wrote in the book at that time.
My point is that it's quite likely you've already given out tons pictures of you to the locations you visit. We-work might be more explicit, but they're not unique.
Also it’s worth noting that the same systems are used by lots of companies, especially tech companies: they go as far as taking photos to print on temporary badges. Photos of guests is certainly not unique to WeWork, most startup offices I’ve visited do it.
Source: 7.5 years of signing guests in to visit me
Getting your picture taken would be a much better deal.
It's the dumb-money backed venture model, and there are plenty of those. Many companies that are not profitable on a unit-economic basis are kept afloat by burning cash. It can't last of course, but in the meantime they can make your life quite hard if you are competing with them.
One could have said the same about Netflix and Spotify. The key point is to find a monthly fee that is low enough to get masses of people subscribing, but high enough that the masses of 1-movie-a-month ordinary users support the 30-movies-a-month power users - or to cap the "power user" limit at something reasonable.
The other thing would be to gain value from the users beyond the subscription, for example by having them rate the movies they see or giving out boni (=one high quality review gets you two extra visits even if you hit the cap).
How would this work for WeWork though? If someone rents the space, WeWork can't rent it out to someone else. And this is work. People are going to show up on most days - unlike gym memberships.
MoviePass _may_ have been a sane venture if they rented out the theatres for MoviePass specific screenings at a flat rate then tried to make a margin on filling those seats up enough. As it is they resold a thing from one company to consumers at a price below the consumer's standard price while trying to convince theatres to honor the passes by rebating the theatres well below standard fare price.
Would you like to buy a coke from a merchant for 2$? What if I could sell you a subscription to buy as many cokes as you'd like for free for a 29$ monthly fee, while offering the merchant 1.50$ per sold item - oh and the transaction would still take place in the store... and be run by the shop owner... they'd just make less money - but hey maybe my subscription will end up selling more coke than the merchant would normally sell - but wait if that happens I lose money, so I only end up making money here if both of you are screwed because I'm essentially trying to make money shaving it off of a transaction that was already taking place.
MoviePass was so ridiculously stupid[2].
1. The price off of Amazon to purchase the season in CAD
2. Props to college humor on a great mock of their business and CEO, worth a watch if you want a laugh.
But then the douchebags moved in with they're brilliant "what we lose per customer we make up in volume" philosophy.
Making up in volume they definitely did.
Not from what I can see ... they charge their clients enough to cover the location. Individual locations are (barely) profitable, the losses are coming from massive expansion and leasing new places.
Maybe I'm wrong on that. Either way this seems like an epic fail, but they are not "paying for 100 flipping for 90".
If you were thinking of joining WeWork that is an incredible deal, especially since it allows you to use any WeWork anywhere in the world.
- People not paying their Credit Card bills on time and racking up interest.
- Everyone else who is not using a Credit Card and get points (or get less points), subsidise the points users.
- Merchants who pay 3% transaction fees.
- Probably to a small degree, investors who buy stock in the cc companies (capital, which is deployed for Growth).
What's it like being the public face of a company under such intense scrutiny?
He answers just enough to not be criminally liable for the overvaluation of the company.
WeWork's average lease term: 15 years
WeWork Tenant's average lease term: 15 months
WeWork's lease obligations: 47.2 bn
WeWork Tenant's lease commitments: 3.4 bn
Almost certainly, the video glosses over (read: ignores) the likely fact that the 47.2bn is over that 15 year average, and the 3.4bn is over the 15 month average, so this doesn't necessarily represent a shortfall in the long term.
$47.2bn/15 yrs = $3.15bn/yr lease obligation $3.4bh/1.25 yrs = $2.72bn/yr lease revenue
So, if they can manage to continue leases at their current rate, they'll be losing $400m/yr.
Big office spaces go un-rented for long periods between tenants. In WeWork's case, maybe they expect shorter dead times.
Keep in mind also, 15 years on WeWork's side means they've locked those prices in, whereas 15 month terms on the client side means rents will go up on each renewal. (assuming no downturns in real estate, of course.)
So, this might pencil out to break-even or a few millions in gross profit ... over 15 years. Hardly a good business.
Lease commitments for the first 15 months of that 180 months: $3.4 billion ($226.6 million/month)
Shortfall for the first 15 months which we know there is contractually-obligated income for: $35.6 million/month.
I haven't read through the original filing, but was the expectation that We would see increased per-month margins over the next 15 years to make it to a break-even or better point?
That said, having been one of their tennants in SF, the price still feels high.
The facilities are really nice, but it's A LOT of cash flow for most startups.
The clinentell that seem OK with the price tend to be large corporations conducing top-of-cycle innovation theater with small offices doing "INNOVATION"
And service agencies; PR, Marketing, etc.
There are relatively few low capital, expoential growth companies I have found.
Very few people griding out code past say 6pm most days.
Most folks are living a lifestyle outside of WeWork's walls. The Transbay facility at 535 Mission is completely empty Saturday and Sunday.
It's a lot of innovation & tec tourists. Folks here for top of cycle vibes, but without the cred of having built something that will last.
People who want to build lasting companies GTF away from WeWork.
Edit: Just found out that Meetup.com is owned by WeWork. This makes sense to me now.
MeetUp is cool, needs to live.
Context; WeWork bought Meetup in 2017; https://www.businessinsider.com/wework-buys-meetup-for-200-m...
Hopefully want the team at Instapaper/Pinterest did will become more common.
Wherein failed integrations will be allowed to go back free and pursue their original potential.
I think this is a very positive pattern.
https://www.engadget.com/2018/07/16/instapaper-buys-itself-b...
_something_ to allow a search for particular times of the day would be great, or the ability to zone in on a smaller area than "5 miles from London". If you want to browse further than My Meetups and Recommended you've to wade through so many 2 person attending afternoon meetups, it's incredibly easy to scroll into the next day and not realise... just all around terrible.
(It wouldn't cause it to be a tech IPO, but at least a sustainable business IPO).
Uber is laying off people, it's gonna happen.
They are not a "tech company" who is trying to "revolutionize" the way people and communities come together to work.
They are a real estate company with a good interior design team and a founder with "a vision" but a lack of grasp on reality.