
WeWork Gets a Visit from Financial Reality - rhayabusa
https://www.bloomberg.com/opinion/articles/2019-01-08/wework-gets-a-visit-from-financial-reality
======
kgwgk
[https://www.bloomberg.com/opinion/articles/2019-01-08/wework...](https://www.bloomberg.com/opinion/articles/2019-01-08/wework-
gets-less-money-shorter-name)

"In addition to the corporate finance weirdness: “Going forward, the company
will no longer be called WeWork but rather The We Company.” (“The switch is
not a legal name change,” okay.) And: “Rather than just renting desks, the
company aims to encompass all aspects of people’s lives, in both physical and
digital worlds,” which is—and I have spent years writing about the financial
and tech industries and do not say this lightly—the very worst corporate
slogan I have ever heard.

Me: What does your company do?

We: We encompass all aspects of your life, in both physical and digital
worlds.

Me: Wait that’s terrifying.

We: We’re like Facebook, only you also live here.

Me: Who did you say you are again?

We: We are We.

The new company will be divided into several main business units: WeWork,
WeLive, WeGrow, WeHarvest and WeFeast, wait no only the first three of those
are real, but I am looking forward to when they start a line of industrial-
chic funeral homes, WeDie. (Free beer at the wake!) Seriously WeGrow (real!)
is “a still evolving business that currently includes an elementary school and
a coding academy.” And WeWhatever’s founders once (in 2009!) “mapped out plans
for everything from WeSleep to WeSail to WeBank.” I can’t keep up with this."

~~~
bartread
"The We Company": somebody didn't check what that _sounds_ like when spoken in
British English. Wait, what? A company that manufactures and or sells wee?!??
(Pee, to our American friends.) It's not as extreme as powergenitalia or
expertsexchange but still something of a facepalm.

~~~
ezoe
It happens all the time. Apple's Siri means Ass in Japanese.

~~~
austinpray
I brought this up with my Japanese friend. He told me there are so many
homophones in the language people are desensitised to stuff like this. For
example: シ (shi) can mean both 四 (four) and 死 (death).

~~~
SllX
You’re not wrong, but your choice of examples isn’t great. Four is actually
associated with death _because_ it sounds like death, four is unlucky[4].
There is also an alternative pronunciation for “four”, よん。

[4]
[https://en.m.wikipedia.org/wiki/Tetraphobia](https://en.m.wikipedia.org/wiki/Tetraphobia)

------
Traster
>The Gulf investors backing the Vision Fund seem to have decided that WeWork
is not a tech bet but simply an aggressive punt on real estate.

This is the bogey man of a huge number of current 'tech startups' \- What if
it turns out Tesla really are a car company! Or if We Work are actually an
office rental company! OR _gasp_ Uber is a cab company! (1)

We now have a glut of companies operating in traditional markets that have
valuations that would indicate they'll be as big or bigger than their biggest
competitors. IWG is a comparable company to WeWork, has £2.35n revenue and
£1.95Bn market cap. Wework has slightly lower revenue but is being lined up
for a £20Bn valuation. Not only this, but WeWork are going to learn about the
cyclical nature of office rental revenue.

The key for these companies is to show concrete indicators that their business
is actually different from the companies they're disrupting and We Work has
done an absolutely rubbish job of that so far.

(1) I want to be clear I don't think all those examples have nothing to
differentiate them, but it's closer than some people might like to think.

~~~
scandox
In 1999 there was an email going round about how ridiculous dotcom valuations
were. Taking Amazon, I think, as an example it said it would have to earn more
than Kodak, Boeing, Caterpillar etc to ever be worth it's valuation.

There was a general sense of "it's just a bookstore".

Now I know everything is more mature and the situation is different, but I
also remember feeling very confident that Amazon was waaay overvalued.

~~~
zwkrt
Pets.com was also overvalued, right? It's easy to see the winners in
hindsight.

~~~
coldcode
Pets went out of business trying to ship heavy dog food for free. But today
the logistics for that actually exists. Often it doesn't pay to be too early.
If you are too early you need more cash to stick around until you are proven
right. Webvan was another example, today food shipping businesses are
everywhere (whether they make money or not one can argue) but back then they
were too early and tried too hard before the logistics worked.

~~~
JohnFen
> Often it doesn't pay to be too early

As the old adage goes -- the pioneers get all the arrows.

~~~
Atheros
The second mouse gets the cheese.

------
sachinprism
I feel like WeWork would be one of the first companies to go under in case a
recession hits the US market. Everyone who works there is probably going to
decide en masse that they can do the same things from home or a Starbucks

~~~
whalesalad
We (2 of us, expected to grow to 4 quickly) toured WeWork, Spaces (Regus) and
a few other one-off spots here in Orange County. Everyone was pretty pricey,
like 2500/mo for 100 square feet. WeWork was definitely the worst and was the
most overcrowded... but hey they have beer on tap! (sarcasm)

Ultimately we grabbed a lease on Pacific Coast Highway with a sweeping view of
the ocean for less with about 3x the room in a freshly renovated building.

These coworking spaces are terrible.

~~~
eddiezane
I recently became remote and when hunting for a coworking space initially
figured I'd just go to one of the WeWork's here (Denver).

I was blown away at the cost of a "hot desk" membership [1]. The least
expensive offering was $360/mo. For a desk that's not "yours" and you can't
leave anything at.

I wound up going with Novel [2] for $99/mo. Sure printing costs me $0.10/page
but other than that it's pretty much a desk.

For fun I checked out the pricing for WeWork SF [3]...

[1] [https://www.wework.com/l/denver--CO](https://www.wework.com/l/denver--CO)

[2] [https://novelcoworking.com/locations/colorado/denver/16th-
st...](https://novelcoworking.com/locations/colorado/denver/16th-street/)

[3] [https://www.wework.com/l/san-francisco--sf-bay-area--
CA](https://www.wework.com/l/san-francisco--sf-bay-area--CA)

~~~
samschooler
I might end up at a desk near you! I'm currently looking for a co-working
space in Denver.

~~~
slovette
Https://www.Proximity.space

Interesting startup. :)

------
mcintyre1994
I get these financial criticisms, I doubt they'll last long when the recession
hits. We were in one recently and I remember seeing a bulletin board thing I
think showing stuff from their Instagram, but it said they're opening 40+
buildings a month. And there's probably 10 in walking distance of the City
now. It's pretty insane.

That said, we moved from a WeWork to a Spaces (the Regus clone-ish) and it's
incredible the basic things that feel standard that Spaces screw up. It took
weeks to get us all building passes. The office was boiling when we moved in,
we asked them to cool it and they made it freezing (no thermostat...), then
ignored further requests to adjust. No microwaves (they sell food instead...).
No free coffee (you can buy instant pods). To print you have to email
reception then wait for someone to be available to do it - and you have to pay
for that. Booking meeting rooms for a future day costs money. You can't ask
them to get your parcel from the postroom, they just leave it wide open so
anybody can take whatever, and there's no organisation. WeWork wasn't anything
special (and had the noise issues everyone else mentioned), but they did have
down the very basics that make an office usable.

~~~
reustle
Surprised at how many locations they have, if this is the correct company:

[https://www.spacesworks.com/locations/](https://www.spacesworks.com/locations/)

~~~
mcintyre1994
That's the one - I wonder if they just rebranded some existing Regus places?
Or maybe they're building as fast as WeWork, I'm not sure.

Funny thing about that list though - their app doesn't remember your office
location, so if you want to book a meeting room you have to drill down from
every Spaces location worldwide down to your country, then city, then office
to find the one in your building. :)

------
code4tee
It will be interesting how this all plays out.

WeWork’s model wasn’t new (Regis has been doing real estate subdivision
arbitrage for years) they just made that model cooler and added some free beer
and a few other perks but it’s still the same business. Someone from WeWork
recently told me they are a digital experiences company and not a real estate
company. Increasingly the market seems to be calling BS on that.

There’s very much a demand for WeWork type services and it meets a real need
but it’s a low margin low multiple real estate arbitrage play not a high
multiple tech play. WeWork has way too many people and far too much overhead
relative to the business they are actually in despite pretending to be
something else.

WeWork also seems to be getting very unfocused buying up lots of other
businesses and getting way beyond their core real estate play. Given that,
shifting market views and their extreme leverage with long term leases I wish
them well but this could get real ugly real quick.

~~~
dvtrn
_Someone from WeWork recently told me they are a digital experiences company
and not a real estate company._

Did you ask them what this meant, or did the conversation effectively die
there? I'd be curious to hear straight from the horse's mouth what the horse
thinks 'digital experiences company' means.

~~~
code4tee
I was trying to be polite and didn’t push it too much, but it was similar to
descriptions coming out in the press. They want to run schools, housing and
all aspects of your life but as a digital experience.

The gist though was that these were all just existing needed but boring
businesses with low valuations. WeWork’s strategy seems to be “but we can run
an elementary school and it should command a wild valuation because it’s not a
school it’s a WeSchool.” It wasn’t a convincing argument.

~~~
dvtrn
Completely fair. I was just curious because looking at so many of these types
of companies that on the face look just like another real estate/cab/hotel
(WeWork/Uber,Lift/AirBnb respectively) company but are convinced "no we're
%synonym laden description of what a cab company does%", I start to wonder how
thoroughly convinced of these descriptions your non-C-level employee is.

------
dunpeal
Crazy valuations for startups like WeWork remind me of the Dot Com bubble,
when companies put up a shiny new "high tech" facade in front of entirely
traditional business models, then expected to be valued at a large multiple of
a normal company with that well trodden value proposition.

We all know how well that ended.

Companies that want the sky-high valuations of innovative high tech should be,
you know, actually innovative and high tech. Just because your company has web
2.0 trappings (or ends in .com) doesn't automatically entitle you to "high
tech" and "innovative" valuations.

Developing a new non-obvious technology would be a good start.

~~~
rchaud
Anything pitched as 'tech' that doesn't look or smell like 'tech' is basically
the founders' way of saying 'we need a lot of money because we lose millions
each year and are nowhere close to making a profit.'

~~~
CaptainZapp
Well, maybe they should add _Blockchain_ to the company name.

------
onetimemanytime
People have been valuing them using the wrong metrics so far: _" WeWork isn’t
really a real estate company. It’s a state of consciousness, he argues, a
generation of interconnected emotionally intelligent entrepreneurs."_
[https://www.bloomberg.com/opinion/articles/2018-04-27/wework...](https://www.bloomberg.com/opinion/articles/2018-04-27/wework-
accounts-for-consciousness)

Can't wait till SEC adds "state of consciousness" and "emotionally
interconnect-ness" to quarterly reports.

~~~
shoo
Quoting Matt Levine from that link:

> That first innovation seems a little questionable. Like, there is an
> established competitive business of office rental in which real-estate
> companies own office buildings and rent them to companies; I am not sure why
> there would be a ton of room to compete with that business by interposing
> yourself as an expensive middleman. Why would a tenant want to pay a profit
> margin both to WeWork and to its underlying landlord, when it could just
> rent from the underlying landlord and pay only one profit margin? There is
> some room for a value-added middleman — and WeWork can add value not only by
> providing beer but also by splitting office rental into smaller space and
> time chunks than a big commercial landlord — but, still, it does not seem
> easy.

> But the second innovation is great. For one thing, it is great for the
> obvious reason: If you can get into a traditional mature highly competitive
> business, call yourself a tech startup, and get a multibillion-dollar
> valuation based on potential rather than cash flow, then you have achieved a
> profound arbitrage and really ought to be rewarded for it. But it also helps
> solve the first problem: WeWork’s tenants don’t have to pay two profit
> margins, because WeWork’s investors give it tons of money which it can then
> spend on giving tenants free rent. In a loose sense, WeWork’s business model
> is getting SoftBank to buy beer for software workers. Which is fine!

------
rchaud
> " Given WeWork’s opaque financials and its self-made metrics such as
> “community-adjusted Ebitda,” you can see why investors might be rethinking a
> company that has relied a lot on confidence, optimism and faith."

I understand why companies occasionally report results as GAAP and non-GAAP,
but "community adjusted EBITDA" is absurd, even for a private company.

~~~
code4tee
They seem to try to use this metric to claim healthy financials on individual
locations (because they rent out desks in aggregate for more than the office
lease costs) but it ignores where a large part of their costs are (central
overhead) and thus it’s an unrealistic picture of how they actually run the
business.

If they ran themselves like a real estate company then their central function
would probably be a few attorneys to process deals and some people handling
paperwork. Instead they have huge central costs which they want people to
ignore via these metrics.

Simple non-GAAP is one thing but most of these invented metrics scream “our
financials are terrible so we made up this metric where if you ignore our real
costs we look less terrible”

------
linkmotif
I really wanted WeWork to work for me. But it did not.

During my time there, it became apparent that their entire focus was on
growth. WeWork was never interested in catering to their core market: people
who want to work. They failed to create a productive work environment. They
alienated people like me, who were willing to pay top dollar for a decent
place to work. Instead they created distraction-filled, tacky places that
fostered little except beer drinking.

I'm looking forward to seeing it crumble, or at least for reality to catch up.

PS. If anyone knows a co-working space in NY that actually provides a nice,
quiet place to work, please let me know. I will pay good money for such a
place. I am thinking like
[https://misantrope.com/?lang=en](https://misantrope.com/?lang=en)

~~~
ghaff
Aren't "co-working" and "nice, quiet place to work" sort of mutually
exclusive? It's like nice quiet open office plan. I suppose it's possible in
theory but doesn't seem to be the norm. Certainly there are lots of places
that rent private offices.

~~~
linkmotif
> Aren't "co-working" and "nice, quiet place to work" sort of mutually
> exclusive?

I don't think this has to be true. Why can't people co-work together, quietly?
This used to be the case in libraries, before libraries became places where
governments administer social services.

It's nice to work around other people, just as long as they are not on phone
calls or taking meetings. These people belong in call centers or meeting
rooms, so that people who aren’t talking can continue thinking and working.

> Certainly there are lots of places that rent private offices.

After giving up on the open office hot desk, I switched to a private office in
WeWork. You could hear the music from the hallway. Furthermore, this
particular WeWork was situated on top of a beer garden. Every weekend my
"private office" most literally started shaking and vibrating as the beer
garden turned into a club. I am not exaggerating. It was a joke.

~~~
ghaff
In my experience, most of the spaces in libraries where I work are still
pretty quiet. But there's a pretty strong cultural expectation that you don't
talk on the phone or have more than short low volume exchanges with others--
even aside from any specific rules.

I agree music seems more than a bit much but a workplace is somewhere many
people have conversations and have to make and take calls. I don't think I'd
be very inclined to spend money on a space where I had to try to find a room
every time I was on a phone call or wanted to talk with someone.

I'm willing to restrict talking if I'm hanging out for free in a library. Not
so much if I'm paying for a desk. One should of course have consideration for
others but, for many, a big part of their job is talking on the phone.

~~~
linkmotif
> I don't think I'd be very inclined to spend money on a space where I had to
> try to find a room every time I was on a phone call or wanted to talk with
> someone.

But what makes more sense: you stepping out or getting a private office, or
making the open office non-viable for everyone else who has to focus? What a
conceit that everyone else should adapt to you when you could simply adapt to
everyone else.

~~~
ghaff
It's a matter of expectations. For most people, an office isn't a library
reading room. It's a place they work which often means talking. Someone's
welcome to do a silent co-working space startup but I don't think they'll have
much success.

~~~
linkmotif
> It's a matter of expectations. For most people, an office isn't a library
> reading room. It's a place they work which often means talking.

Can't argue that. Only issue is WeWork doesn't sell it that way. They sell the
open office space as a quiet place, and then play good cop/bad cop and
everything in between.

------
tedivm
> The tech bubble’s financial backer of last resort, the $100 billion SoftBank
> Vision Fund

That is the most amazing and accurate description of SoftBank I've ever read.

------
CodeSheikh
"The Gulf investors backing the Vision Fund seem to have decided that WeWork
is not a tech bet but simply an aggressive punt on real estate."

If you have earlier invested in WeWork as a tech startup then one should be
questioning your investment strategies and research methods.

~~~
freewilly1040
Probably not a bad idea for SoftBank... even this headline is funny, Sotbank
has decided against a _ludicrously large_ investment in favor of a _still very
large_ one

~~~
whatok
SoftBank did not decide against it. SoftBank's Vision Fund investors decided
against it so SoftBank itself invested instead of the Vision Fund.

------
holoduke
I really wonder why and how companies are willing to rent at these places.
It's full of arrogant pricks and the failure rate of startups is insane. I
founded a company few years ago. Was offered space at we work for about 3k for
just 100square feet. Few days of searching through local real estate companies
brought me a 300square feet office for 1.5k at a similar location. Only no
freebeers and fancy entrance.

~~~
rrggrr
Just looked at a WeWork space today. The use case is an attractive place for a
remote employee to work for us in a job that attracts (and is best done) by a
highly social person. I can't get the right person leaving them at home, and I
can't relocate them to me.

~~~
Fomite
While I agree with this use case (and is why I hate co-working spaces for what
I do), that's a pretty narrow slice of the market given their current
valuation.

------
cityzen
What are people's thoughts about a franchise model co-working space where the
core company develops all of the technology, infrastructure, etc and then they
are all independently owned and operated paying a franchise fee? I see a lot
of people that want to start a co-working space and spin their wheels trying
to figure out how to do it right. If there was a blueprint and turnkey
solution to manage users, website presence and you could open one in a strip
mall, would people use it? One problem I see is that people compete to make it
THE place to work as opposed to A place to work.

Imagine if your town had almost as many co-working hubs as mattress firm
stores. I know that's a lot but a guy can dream, right?

Edit: Not to mention, you could have a membership that could be regional,
national, international and interplanetary.

~~~
cmonfeat
Are you thinking a traditional franchise (like a gym) or a platform that
independent landlords can list their co-working spacaces on (i.e. Airbnb for
coworking spaces)?

They both seem like less risky and more traditional tech plays than WeWork's
current business model.

~~~
cityzen
Years ago (before airbnb) I was working on that independent landlord idea and
got cold feet when people I was interviewing seemed mostly concerned with
insurance liability of having strangers in their space. LiquidSpace came along
and did the same thing but they were funded so better equipped to navigate the
liability issues.

That's when I started thinking about smaller co-working spots in strip malls
and similar locations. Focus more on the details around managing co-working
(member management, access management, etc) and franchise it out.

I have never gotten deep into the details so there are likely many reasons why
it wouldn't work but as a work from home guy, it's something I'd love to have
near me.

------
mgadams3
I've enjoyed being a customer of WeWork (and benefitting from this
economically untenable situation) much more than having my start-up acquired
by them. It actually is a pretty well executed product (not economically
viable but well designed/run spaces) but not the type of company I wanted
anything to do with as an employee. I definitely wasn't buying their pitch
about being a tech company.

I left immediately after we were acquired to start another new company and
have been very happy with that decision. The whole thing was very...
bizarre... to say the least. Just glad I can enjoy this spectacle from afar
with relatively little skin in the game.

------
chiefalchemist
> "While there’s no doubt a sober message here for Silicon Valley optimists,
> there’s also one for markets at large. This might be a turning point not too
> dissimilar to past real-estate bubbles."

The question is have now is: where are those investors / investment monies
going to go next? If the hipness of being involved in startups is over (for
the trendy types if you will), where are these rich cool kids going to go
next? That is, unless they have a place to go, are they going to leave?

------
Blackstone4
This Bloomberg article got it wrong. The stock market has been going down and
they jumped on a potentially negative story. Bottom line is SoftBank didn't
make as much money in the IPO of its Japanese telco unit and the Vision fund
can't invest due to Saudi interest.

From Dan Primack's column at Axios:

>"The state of play: There's lots of buzz about how this deal is much smaller
than what was originally contemplated, including one 2018 report whereby
SoftBank could acquire a majority stake in the co-working space giant.

>The big picture: We told you in October that the control deal was no longer
on the table, but that investment negotiations were ongoing.

>Fast Company this morning reports, based on an interview with CEO Adam
Neumann, that the two sides neared a much-larger deal that could have bought
out all of WeWork's existing shareholders, but that SoftBank bailed after a
disappointing IPO for its Japanese mobile unit. In short, SoftBank's corporate
balance sheet was smaller and less flexible than had been originally
anticipated. SoftBank theoretically has enough dry powder in its Vision Fund,
but we hear that the Saudi connections made that prospect less appealing to
both sides due to perceived regulatory risk (read: CFIUS, particularly in
light of the Khashoggi murder). The bottom line: Don't read this deal as a
macro commentary on unicorn troubles. SoftBank is still investing $2 billion
into WeWork, in which it already holds a sizable position though both its
balance sheet and Vision Fund, and doing so at a high valuation.

>Not even the most profligate investor spends that kind of coin if it believes
the market is crumbling. There also is a NYT report that SoftBank may have had
trouble getting enough WeWork shareholders to sell into the larger proposal."

[0]
[https://www.axios.com/authors/danprimack](https://www.axios.com/authors/danprimack)

------
mothsonasloth
Anytime I've been to a WeWork, I have never seen much work being done.

Common themes I've seen are, some hipster Instagram'ing their overpriced avo
and toast, a bunch of cute dogs running around mad distracting everyone,
people browsing social media and someone messing around with the Sonos music
player, setting the song to Rihanna's "Work" on repeat.

The WeWork camps look fun, if not a bit cultish.

caveat: these observations are from what I've seen in the shared spaces, I
realise there are private offices and spaces where people will be working
hard.

------
carlsborg
Some anecdotal trends from first hand observations in a few co-working spaces:
1] Startups that do well tend to outgrow the co-working space and leave for
their own offices. 2] Higher salaries/interesting job openings in larger
companies due to economic growth and low unemployment at the macro level means
fewer people co-working at startups that don't do well. 3] Remote workers want
to arbitrage living costs so they leave big cities and go to low cost areas.

------
vinceguidry
I hope they make it through. I have a WeWork right in walking distance and
would love to work there regularly if I ever get a remote job.

~~~
grogenaut
What is attractive to you about it? Serious question, I’ve worked in their
spaces before but we leased an entire floor and I wasn’t wowed or pissed at
it. What makes you excited?

~~~
colmvp
I co-work in one. The people who also co-work there are friendly, and they do
have good amenities. Honestly, they upped the game of co-working spaces in my
city. I don't work consistently in the office to warrant renting my own office
space but I wanted a place where I could socialize instead of getting cabin
fever at home. Starbucks / Cafes aren't really conducive to talking to random
people either.

~~~
badwolf
This is basically my story. After we closed our office due to everyone except
me moving away, I worked from home for a few months. It's nice being around
people.

------
jamisteven
WeeWork largely catered to the digital portion of the gig economy(freelancers
etc), which was largely over estimated. [https://www.wsj.com/articles/how-
estimates-of-the-gig-econom...](https://www.wsj.com/articles/how-estimates-of-
the-gig-economy-went-wrong-11546857000)

------
slovette
Has anyone seen startups like this:

[https://www.proximity.space](https://www.proximity.space)

Seems like maybe a more realistic approach that provides a way for traditional
real estate to become coworking spaces.

------
schintan
Even the 2B might be just to preserve the value of their earlier invested
money ?

------
wolco
A private office costs between 1,000 to 22,000 a month in ny city. Why not
rent a house or apartment the privacy would be better and beer for all.

~~~
jacques_chester
Mostly because (a) insurers will typically void your homeowner's/renter's
insurance and (b) the amount of business you can do from home in NYC is
limited. It works fine for a techie working solo. But you won't be able to
work _with_ anyone.

------
nkrisc
Perhaps I'm missing something, but in what sense, even in the most liberal
interpretation, is WeWork a technology company?

------
wongarsu
tl;dr: Softbank/VisonFund investors told Softbank that they want to
concentrate investments on "technology bets". Since WeWork is a real estate
company and not a technology company Softbank will invest less in their next
financing round (though not so little that it will be a down round)

------
fxfan
Dang most comments are reddit tier. Could you please clean up. Thanks.

------
acd
One could say Uber a taxi car Company Airbnb a hotel Facebook selling private
information Google advertisement company Tesla car company

~~~
zrobotics
True, but at least the companies you mentioned did something new in their
respective industries. What, exactly, has WeWork done that is innovative,
aside from putting a trendy face on office rental?

~~~
drewrv
WeWorks innovation is coming up with an office rental "product" that has high
demand not being met by the market. Most property owners want long term leases
because vacancies cost them money. Most freelancers and small businesses want
short term, month-to-month, fully furnished office spaces.

I think they're overvalued, and they'll be in trouble if a recession hits. But
coworking spaces do fill a need in the real estate market, one that's likely
to grow, and WeWork is the market leader.

