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WeWork Is Raising Funds at $35B Valuation (bloomberg.com)
117 points by vthallam 8 months ago | hide | past | web | favorite | 134 comments

If the tech bubble and real estate bubble had a baby, it's name would be WeWork. How is a company that had a net loss of $933 million and that owes $18 billion in rent even remotely worth $35 billion. I'd consider the lemonade stand on the corner to be more of a business than WeWork in the true sense of the word. What's inherently hard about what WeWork is doing? With enough money, anyone can rent out buildings, chop it up, and make it appealing to hipsters with some interior work, then over charge companies and individuals to rent out tiny spaces.

I find this whole “owe $18b in rent” thing that’s come up recently interesting.

They only "owe" $18b in rent the same way any company leasing office space "owes" their landlord money. The word "owe" is thrown around here in relation (almost exclusively to WeWork) to imply they're in arrears to the landlords to the sum of sum of $18b.

It isn't anything like that - they have leases over the next 10-15 years with a contract value of $18b.

Over the length of their leases they have an $18b obligation, but that isn't the same as the way "they owe 18b" is used colloquially to mean currently in arrears/default.

It is the same as entering into any agreement - over the agreements length you have an obligation, which if you can't service you're insolvent.

I guess I find the narrative that they "owe" $18b to imply a far greater extent of distress than the reality of their leasing obligations actually entail.

>It isn't anything like that - they have leases over the next 10-15 years with a contract value of $18b.

Precisely. They have liabilities of $18b with no profits. In the event of revenue drying up, they are still on the hook for those leases. There is no real difference financially between a lease and a loan in that sense. If I lose my job and can't pay the rent, I don't get to just say to my landlord "Sorry, lease is up!", and move out. I can be sued for that entire value.

You can't frame it as a loan because it's nothing like that. In fact they can only get $18B because landlords know if WeWork goes under they aren't getting paid the rest of the lease (lucky to get much at all). The point is, they don't mind. It's not lost money it's lost contractual revenue on a building that can be turned around immediately. The risk profile is not even close to the same.

If I was an investor in WeWork I'd care 0 about the total amount and almost entirely on what their trajectories look like, and the terms of those leases, etc. The $18B number is a red herring.

If they operate like most real estate companies, each lease is entered into by a different corporate entity. Any one of them could be sued for breaking a lease without touching WeWork.

But nobody sues when they can just rent to another party.

As a WeWork member, I can confirm that the lease of my local WeWork (and the fee I pay) go to a subsidiary specific to the location.

>It's not lost money it's lost contractual revenue on a building that can be turned around immediately.

That's the whole point though.It is lost revenue because in an economic downturn, when no one is trying to rent office space, the landlords will be left with no recourse but sue if the leases aren't paid. There are underlying construction and mortgage loans on the buildings being leased that must be paid regardless of whether the lessees bail out. At a certain point someone is left holding the bag.

Its still a short/long term liability on their balance sheet... until they have substantial enough assets (eg 5-18B worth of future revenue) they are working out of a massive negative equity hole.

Leases haven't been on the balance sheet historically, although a 2016 change (which comes into effect next year) will see them move onto the balance sheet, however offset by a corresponding right to use asset.

The right to use asset is depreciated over the course of the lease whilst the liability is decreased as payments are made.

So it isn't a huge negative equity hole (particularly at present since lease obligations are off balance sheet), but with these changes gross debt will increase substantially, which may trigger covenants with regards to debt ratios (equity will be offset by right to use asset however, so no bit equity hole even with new accounting rules).

There is a huge difference - the duty to mitigate losses.

A landlord can re-let the space to another tenant, and start earning revenue again.

The money loaned however is gone until it is repaid. The total loss of a loan is the principal remaining unpaid at time of default, since you have permanently parted ways with the money once you transfer the funds to the borrower.

A lease on the other-hand hasn't deprived you of anything. You've still got the asset that can be released.

The losses in this instance are limited to the period of time the premised was vacant and unpaid for, as well as associated other costs such as an amount of any incentives provided as a proportionate to the length of the lease term remaining, legal costs, reletting costs, advertising and renovation costs etc.

You can't simply sue them for the entire value of the lease - especially if someone else moves into it and starts paying rent, you'd be double dipping.

You can be sued for the entire value, but in all likelihood the lessor would expect you to pay until you or they find another lessee.

But it does impact your appraisal of their net present value, since you know their future income streams have to exceed at least that obligation plus other operating costs.

I think it’s fair for their rent obligation to contribute to the concern about their business in this sense.

Yes, it’s not like an immediate obligation of $18 billion. But the effect on a net present value calculation of a company already operating on big losses is still very important.

Agreed - just haven't seen future cashflow obligations referred to as "owe" in the same way, except for when discussing WeWork, so (to me) comes across disingenuous given the lack of consistency in application.

It’s pretty standard use. Owing is not about being late on payments or in default.



Again they're loans not lease obligations - different.

You can sublease or assign your obligations in a lease, typically you can't assign a loan in the same way.


To clarify, when the average household talks about their family debt, they don't include the future lease payments that they're liable to pay over the remaining term of their family home's lease in their calculation - that is (rightfully) an expense, not a liability.

They do think about their mortgage though in terms of net worth and debt position.

Actually I was replying to your previous claim that "owe" "is used colloquially to mean currently in arrears/default". Colloquially "owe" means "in debt". According to the dictionary "to be under obligation to pay or repay". To what extent other liabilities (leases, pension fund obligations, whatever) can be assimilated to loans is a different question.

You're right that only WeWork appears in the news in these terms, but WeWork is an unusual case. I would be interested to know if there are other companies in a similar situation.

Gotcha, sorry - I guess you're right, doesn't mean immediately due, or past due, I just don't think of leases as owing, just a commitment to pay, which might be splitting hairs.

In the linked article of this thread though, and a few others I've read specifically about WeWork, it feels like it is used to imply a currently due debt that they can't pay, mostly for dramatic effect I imagine.

Someone else had some comments in another part of this thread about other companies with large plant/equipment leases receiving similar commentary, such as expensive data centers.

You only hear it on businesses that have substantial future cashflow obligations, which most startups don't. That's levied against anything with capital. I've heard it used against scooter and bike rental companies, I've heard it used any time a company has its own datacenter instead of AWS, etc.

Of course Uber and Basecamp and Reddit and Dropbox and other unicorns don't have this kind of criticism, because they don't have the same amount of heavy plant capital that WeWork has.

Look at any thread about a company building/buying a datacenter and you'll see the same argument. It's a bad idea because if they shrink in the future they're stuck with capital they can't pay for and now they go out of business. Only in this case, they can't shrink any more because they're already massively unprofitable, PLUS they have ungodly amounts of debt obligations.

Fair call, and good distinction to draw.

Having 18b in obligations is the EXACT same thing as owing 18b. Litteraly the exact same thing. Here in Denmark the name of a bond is “obligation” againg litteraly the same thing.

I get what you’re saying, but real estate is all about cash flow. Losing a billion a year is a problem for a capital intensive business.

When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants then the whole thing looks even crazier. VC money paying revenue of a startup that uses that revenue to justify raising more money from VCs. I have some bridges to sell.

While this is true, there's plenty of non VC backed companies, consultancies, and startups at WeWork. I never liked the place myself, but it does provide value. A lot of money out there is dumb money, and a lot of it is smart money, and there's nothing wrong with having some percentage of your revenue be dumb money. AWS certainly does but nobody would question the sound fundamentals of AWS as a business. WeWork has a better balance in that regard than many others.

That's how mainstream internet got started - dotcom-era Yahoo was getting paid the ad dollars from startups spending money to buy growth, that very money they have raised on the promise of being the next Yahoo which is making a killing! (on the ad dollars...)

>When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants then the whole thing looks even crazier. VC money paying revenue of a startup that uses that revenue to justify raising more money from VCs. I have some bridges to sell.

A definition of a pyramid scheme

"When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants"

Is that a known fact or just a guess? The prices are low enough that it seems like it could easily appeal to bootstrapped companies or small businesses.

Anecdotally,we're a bootstrapped business and a happy wework tenant.

You're missing what WeWork actually does. They're in the data business. So is SoftBank, their primary investor.

WeWork tracks everything that goes on in its buildings. They're in the business of understanding the quantifiable nuances of human interactions within a workspace. WeWork itself uses that data to "optimize" the coworking experience, but from what I understand, SoftBank has much grander schemes.


Oh wow look what else SoftBank owns: https://en.wikipedia.org/wiki/Boston_Dynamics

Soon there will be robots walking around the WeWork offices delivering coffee and monitoring peoples breathing patterns.

The actual data business is pretty thin margins.

So unless WeWork can use that data to be a better real estate company, it doesn't much matter.

And I have a hard time believing that WeWork needs all that data to create their coworking spaces these days, especially since lots of competitors come real close without the data.

They would have a ton of data points on how all the "free beer" runs out constantly, as well as the "free cold brew coffee".

They'd get data on how they don't have enough bathrooms for their capacity, there are often broken items in these bathrooms, and more.

They'd have data on how there's never enough mugs and how they're at <60% capacity in one building, yet opening up 2 more in a city :).


I think there's a bigger picture here. I'm not suggesting that selling the data is lucrative. From what I've heard, WeWork and SoftBank have plans for the data that goes far beyond coworking spaces or data brokerage.

I'm thinking of it as a lab for quantitatively studying human behavior in a candid setting. When you go into a WeWork space, you're a specimen.

Like Westworld. Heh.

IMHO, the real innovation here is 3 fold:

  - A fresh presentation on small suite / desk rental + some trendy common area space (vs legacy players like Regus which had gotten very tired) 
  - Having space that's largely built out. Companies can spend $50 - $100+/ft getting space ready for their use
  - Bridging the mismatched term expectation between landlords (desiring 5-10 year terms) and smaller tenants (desiring 0-3 year terms).

It’s very hard to read code formatted blocks on mobile.

It's hard to read on desktop too. The UI requires me to horizontally scroll in order to read the comment. Feels broken.

It's very hard on a desktop too.

These all seem like extremely low-hanging fruit for a building management company to do itself.

What frictions do you think gives WeWork essentially what you describe as a lease arbitrage opportunity?

Short term, direct leases scare thee crap out of institutional landlords. It impacts the surety of the building's income stream, which is reflected in the assets' "cap rate" and therefore valuation.

Also, due to protracted lease negotiations and brokerage model (both tenant and landlord brokers get paid based on the total lease payments), there isn't motivation for shorter term leases. Just ask anyone who has a small lease requirement that is in a stable, non-VC backed company -- no tenant rep broker wants to take this work on because there is no money in that transaction, there's not that much less work than required vs a larger lease requirement, and no promise of a bigger deal with that company down the road in case they become the next Dropbox....

So 3 out of the 4 involved parties are not motivated to shorten lease term. The only one who wants shorter leases are the tenant.

So what's to stop a local real-estate investor, or twenty investors, from leasing ten office buildings in downtown Seattle long term and then subletting them short term?

Where is the WeWork moat? Buildout? Reception clerk? Meeting room reservation software? Demand forecast?

At some point the VCs will stop pouring money into it, WeWork will have to charge the full price, and then any old group of people with money can build a local WeWork clone. And unlike WeWork they won't be saddled with expectations of paying a return on the multi-billion investment spent on subsidies.

One useful thing about WeWork is I can drop into any location in the world several times a month and I'm already set up, I just point and click, and I'm ready to go.

Croissant is an interesting aggregator that does this across smaller coworking spaces, but does require you spend some time getting set up each time you use a new space.

I can do the same at Starbucks :-)

Then why bother getting a coworking space at all? Yet many do... The experience is night-and-day different... sure WeWork is more expensive than Starbucks (it costs about 5 Starbucks drinks a day), but the productivity difference is worth it.

I could see some defenses of WeWork, but surely not productivity!

Having worked in a company fully based in a WeWork location in Boston, I can tell you WeWork basically is a complete stereotype of precisely all of the miserable, distraction-focused problems with open plan offices in general.

For fun meetups and goofing around, they are nice spaces.

For getting work done, it’s horrible, universally. People on my team would actively leave the WeWork office and walk to Starbucks to get work done, or more often just constantly work from home.

Whatever VC <-> founder winking social signaling and sort of cookie cutter “look at how start-uppy and innovative we are” status signaling must be the driver of locating in WeWork and coworking spaces generally.

It is clearly not related to productivity, quiet or private conditions conducive to engineering work, or basic workplace ergonomy or cognitive health.

Or a library.

That aside, percentage of WeWork tenants that ha e to travel is what? 2%?

If it's so easy, why did no one do it before? Other than Regus, who didn't do it so well.

One thing that is getting lost in the noise they have like a 40% profit margin and many new properties are profit share with the developer/owner of the property. They are spending very aggressively on expansion but unlike Uber they actually have decent margins.

40% margin on real estate seems so high. Would you mind sharing your source?

https://www.youtube.com/watch?v=-EKOV71m-PY (after reading through the comments decided to learn a bit more and found this interview).

It is a very, very generic coworking arrangement. Get A grade space, add services, sublet, rinse, repeat.

The coworking industry, a novelty in US, was alive and kicking everywhere else before becoming a hipster trend in US.

I'd say, WeWork, with all its colossality, is still only managed to secure single digits of the market share. In the future, it has no chances to approach even, say, 10% as competition is cut throat.

I think that may be one attraction. With relative ease to raise funds in US, they can gobble up other global competitors , especially if the competition is cut throat (so very slim profit margins). They can easily become the dominant player if they can keep raising funds and acquire competitors in few more rounds.

One moment here. What if you competitor will not sell itself? The "grand scheme" fails

Wait, how do they have a positive margin at all if they are losing all this money?

The profit margin quoted is likely just based on what they pay vs what they charge (per sq foot). Doesn’t include staff, marketing, etc.

? you can have 99% margin and still loose money :)

> How is a company that had a net loss of $933 million and that owes $18 billion in rent even remotely worth $35 billion.

Theranos had a valuation of $9 billion not too long ago. Did we forget about Pets.com and all the "valuable" properties during the dotcom boom that became worthless in a manner of months? Or the shacks worth hundreds of thousands during the 2000 housing bubble?

> I'd consider the lemonade stand on the corner to be more of a business than WeWork in the true sense of the word.

You should. There is so much money out there looking for assets that you could start a lemonade franchise business and you are sure to get investors bidding up your property even if it makes no money.

The current economic environment is dotcom bubble + housing bubble combined on steroids. There is lots of money to be made if you are willing to suppress your morals and just take the money.

The net loss is meaningless currently. You're quoting the $933 million as though it matters: it does not.

That's a sub 3% dilution on their valuation. Laughable with the capital that is freely flowing right now.

It only matters if the music stops at a time when their finances are in very bad shape. If you had polled HN about that, you would have gotten four years ago as the popular answer to when the music was going to stop.

Amazon took the exact same risk, bleeding vast red ink to expand aggressively, financing itself with free flowing capital during a bubble. So is this comparable to 1996, 1998, 2000, 2005, 2007, none of those? Who knows, especially given the behavior of central banks is aggressively interventionalist post 2007.

So many people like referring to Amazon and Facebook, although they forget that both companies capitalized on the rapidly raising demand for better shopping and better casual networking triggered by the rise of web. There were actual people willing to pay for a solution and there was nobody else providing a good enough solution because the technology was relatively new.

What recent technological advance made WeWork possible in a way that was not viable 10 years ago? Cash burning VCs' pockets that lets them underbid the competition?

Not trolling, really don't understand how WeWork is valued at 35 BILLION when they don't even own the real-estate properties that they are leasing.

How is this absurd valuation -- or for that matter, even the 17 BILLION previous valuation -- justified esp considering (according to the article) they are losing money ?

> The company’s bond offering documents showed fast-growing sales but even faster-increasing losses. WeWork had total revenue of $886 million but a net loss of $933 million in 2017, according to the documents.

As someone else has pointed out, not owning the real estate is part of the reason for the high valuation.

A good franchise business will force the franchisee to buy the real estate and give the franchise the opportunity to buy the real estate at a fixed cost (either fixed outright or a multiple of revenue for the location), effectively giving them no downside on capital depreciation on the site (i.e. the value of the site going down) or the ongoing dilaps costs. They only have upside: they can buy the site if it's doing really well. And meanwhile, you're buying your training, goods, services, and paying a portion of your revenues to the franchise.

WeWork is like a franchise which has no interest in owning your real estate.

They and others have realised the opportunity to take advantage of a couple of factors in the macro (more fluidity in working working lives -- telecommuting, flexible work --, startups, low interest rates meaning units can be vacant and on balance sheet without too much pain for an owner) and build a smart offering around that: got an empty building OR bored of the overheads and headaches of managing an office space yourself? We'll lease it from you for a fixed price and then take any upside. You get smoothed cashflow and a fixed yield, and we get whatever upside we can make.

They don't have any of the overheads, complexity, costs, or risks of owning the real estate. The IP and brand they're building (brand is an important factor here!) are not wedded to geography. Shoreditch isn't cool for startups any more? WeWork is gone.

> They don't have any of the overheads, complexity, costs, or risks of owning the real estate.

They spend massive sums of money to build out other people's buildings and typically enter triple net leases which means they do indeed have the overhead, complexity and costs of owning real estate. Even more complex really because they have a long term lease and need to constantly keep it filled with short term tenants.

Owning the real estate is exactly why McDonald's is valuable :) but there are odd terms.

But it doesn't answer the existential question as to their valuation.

I don't see how WW has any systematic advantages at all.

Nobody really cares if offices are in WW or some copycat clone.

Many companies are wearing of paying heavy premiums for such offices and want out as soon as they can.

Real estate is an old business. There is no 'new' here. Dressing up places, making them cool and selling at a premium is not new.

I just don't see where the magic sauce in this business is.

I wonder too, but I do see some possibilities:

1) The brand has value. Sure, making an empty space into a co-working space is not that hard. However, how do you market that? How do you get potential workers to know about your space, and choose to work there? If WeWork or Impact Hub are the known brands, people will search there first, and never find you.

2) They may also be exploiting information asymmetry between the high-cost and low-cost areas. If a company in NYC or SF is used to paying $50/sqft/mo ($500/mo for just 10sqft) for space alone plus utilities, etc., they may not really balk at $500/mo for the co-working space used by a remote employee. Sure, those companies know they're getting fleeced compared to regular costs in those cities, but they may also not care, as it's not worth it to economize for just a few employees, and when it gets to many, they just negotiate a bulk deal with WeWork.

I think the brand surely has value, but not $30Billion worth of value. It's like a clothing line brand or something, i.e. you might trust it more, might be willing to open offices remotely there just because your familiar with it.

There is no 'asymmetry' in commercial real-estate really ... prices are well known and watched in every town. Do a little running around in any town and you get a pretty good idea very quickly.

Also, they are loosing a huge ball of money.

The BI article hints at 'dot-com bubble trouble' and I believe it for this one ... the economics look bad and it could crash.

If this goes, and say, Tesla pops ... it could be really bad because the 'crypto coin' thing is essentially a bubble of sort (by that I mean fuelled by speculation) and that could come crashing down very easily and quickly as well. There is also an AI bubble (AI is here to stay, but companies/valuations are whack) that needs a correction.

So long as the US economy stays good ... maybe all of this will hold, but some douche-bags are going to just make 'one lie too far' and things will get gummed up for a lot of otherwise good companies.

Add uber to that list.

Uber may be overvalued but they are viable on some level - so they won't go out of business, just investors will get hit.

Tesla needs cash, and if they can't get it, they could fail. Or be massively downsized.

WW needs cash badly, if they don't raise ... it will crash.

WW needs cash badly, if they don't raise ... it will crash.

I don't know about that. The relationship between WeWork and the building owners may be co-dependent rather than merely symbiotic.

If you owe $10,000,000 in rent, you have a problem. If you owe $10,000,000,000 in rent, the landlord has a problem.

Not sure to what extent this holds when you owe $10M each to 1000 different landlords, though (I have no idea how many different landlords they are dealing with).

There is somewhat of a network effect for business travelers. If you are WeWork member, I assume you can grab a desk in any of their buildings around the world. That is much better than needing to sign up for multiple co-working services, and it beats always working out of a hotel business center.

I am not saying WeWork can justify their valuation, but they (and some others) are fundamentally changing portions of the real estate market. They are putting more people per square foot into offices and are getting people to pay a premium for perks and flexible leases. Getting people to pay more for less space is a big deal (if it continues to work...) This is a totally different model than what traditional real estate players have done. Hence why a lot of commercial real estate players are scared and trying to catch up.

> I assume you can grab a desk in any of their buildings around the world.

No. At least for now.

i think the magic sauce is to create synergy in each WeWork econo-vortex for new economy micro-proprietors who are uniquely positioned to profit from aggregated networking opportunities and beer

Even though your post is brilliantly sarcastic ... it may work.

Starbuck's convinced a generation that they = coffee + environment.

WeWork could feasibly convince a generation of Gen-Z startup wannabes that 'they are startups'.

I find the milktoast 'fake startup' environments at WW kind of repulsive in that way - they are literally designed to be the 'environment for the post-Uni lifestyle' but in a watered down, 'safe space' inauthentic manner.

Kids are going through schools with 'everything', Unis 'with everything' (i.e. cappuccinos and lattes into class) to workspaces 'with everything'. It's like they don't have to encounter reality now until 30. And with 'retirement spaces' moving back from 65 ... we may successfully create the capitalist driven 'cradle to grave' lifestyle factories.

Like 'touring the world' is hoping from each of the 'French' and 'UK' and 'Canada' pavillions at Disney's Epcot centre ... you'll soon be able to walk through someone else's version of reality, like living full time in a 'real life commercial'.

I always appreciate the entrepreneurs who want to 'get out of there as soon as possible' for so many reasons.

All startups should have at least a few symbolic 'desks made out of doors' or something of the sorts, or maybe not-so-symbolic ones.

Starbuck's convinced a generation that they = coffee + environment.

I'm not entirely sure what that equation means. That Starbucks has convinced a generation they're...a coffee shop? Even if you don't like their coffee, they are a coffee shop. That Starbucks...cares about the environment? By big corporation standards, you could do worse, I guess? Or do you mean that they present themselves as a good environment to do the "hang out here for a while or work here with a laptop" thing? With provisos about how wildly this can vary from location to location (boy howdy, can it), in general I'd argue they are a good place for that. In the SF Bay Area I have a panoply of cafes that serve better coffee, but the majority of them are louder and/or more crowded and/or more expensive and/or less comfortable and/or subtly-to-openly hostile to "digital nomads."

If I have a complaint against WeWork & friends, it's mostly a matter of cost; if I'd been bold enough to try a startup 10–15 years ago, which I probably should have, I wouldn't have dreamed of looking for office space until we had actual revenue (i.e., not VC/seed funding).

Starbucks is not really a 'coffee shop'. They are an 'experience' - moreover, and have re-defined what 'coffee' is to a generation. The reason it's problematic is because it's fundamentally inauthentic experience, and they don't create the experience that they are actually set out to achieve. Possibly their first handful of shops in Seattle were, but since then, it's been commoditized.

What they ostensibly want to crate is a 'mini community centre' a place where people can go, hang out, read, and interact in a hyper-local manner with 'people they know' - like the terraces in France or Italy. But what they've done is not this at all - the experience is utterly corporatized to the point of being banal. None of their products are locally sourced or relevant. They certainly didn't even try with things like Croissants (Starbucks croissants are like rubber, but who cares, so long as people don't know what a Croissant actually tastes like and keep buying them). The music is even 'lowest common denominator'.

There's a coffee shop near from me which is in fact the 'real deal': all foods made fresh each morning on-site, local owner who is actively engaged in the community (and a total character), and it's actually a true centre for finding out all the cool goings on in my hood. The music is chosen by the folks working there and it's always charming, nuanced and interesting. Literally with old French guys arguing about some political this or that (it's Quebec).

After hanging out in this local spot - visiting a Starbucks for me has about the charming authenticity of a McDonald's.

I've realized only recently that I think people have difficulty grasping this because they've lived in a corporatized bubble of culture their entire lives (this is common in North America) and have almost no context with which to compare it.

WeWork has pragmatic value (just like I don't mind grabbing a Starbucks when I'm out and about), but it's also designed to create an environment which is the 'romanticized' version of startups, not necessarily real ones. There is a great P Graham article about startups who 'play house' (I'm sorry I tried to find it for you to no avail) i.e. going through the motions. whenever I visit WW I get that feeling 10x. I also feel that the environments are inauthentic ... tiny little beer cups? What's with that? Liability? "Drink beer, but really, don't". Please.

A pragmatic concern is the 'arms race' that they kind of create for new startups trying to attract talent, in some ways 'hyper cool office' is becoming normative, and it's just an added, not-so-necessary expense.

I like the shared spaces for MeetUps however - this is actually quite valid and authentic.

You seem very angry and judgmental about people's choices about what to consume and it's not even very clear what exactly you are angry about. The only thing that you reference explicitly is lattes.

But they also don't have franchise fees, or a captive market of franchisees to sell goods and training too. WeWork ARE the franchisees in this comparison.

I personally don't understand the valuation, but there certainly seems to be demand for both their bonds and equity. Here's another Bloomberg article with info on their recent $700mm bond sale in April and a couple of interesting excerpts:

> The company had initially planned to sell $500 million, and then received orders of about five times that amount.

> Moody’s Investors Service rated the notes Caa1, seven steps into junk. S&P Global Ratings rated them three steps higher than Moody’s at B+, while Fitch gave them a rating of BB-, four steps higher than Moody’s.


It's because they were dangling nearly 8% yields out there. As a comparison Argentina was recently successful with a 100 year bond (!) at about the same rate. This is the same Argentina that has defaulted on its bonds eight times and as recently as 2014.

tl;dr disregard their ability to sell junk bonds

Not giving them props on their bond sale at all - I mean more that they had a huge level of interest in the sale so the market is showing a high level of interest DESPITE the junk rating. Bonds are junk when the reliability of repayment is low. I guess those investors (and anyone interested in the raise at $35b valuation) are ok with the risk.

Anything with a decent yield is oversubscribed in the new issue market right now. That said, these bonds were trading at 92.75 at the lows just days after being issued. New issue bonds don't trade down that low unless there's something seriously wrong with the name or if the entire market is puking.

The huge level of interest was because the huge yield, you'd have to work hard to issue debt at a higher rate. The fact they needed to offer such a yield is proof that a lot of people think they are going to fail. (Remember that the bond holders will typically be repaid before the VCs.)

And likely to default again in the next 12 months

I know your not trying to troll, statements of disbelief are very common about companies that are about to own an entire market with no real competition in sight. No one sees it yet but these guys are about to own office space and how that is acquired in the future, whose going to stop them? They are creating a future you don’t yet see.

People couldn’t believe Uber was worth more than Delta airlines in one of their valuation rounds.. this is very common. They were about to own the taxi industry and take a cut out of every ride.

This is so much bigger than that.

This is an interesting comparison, because Uber is also hemorhaging money and to a lot of people it's still not clear they're worth anywhere near as much as their valuation.

It's easy (relatively speaking) to build a big business when you can take on billions of dollars in losses. Turning that around is the hard part.

Plausible $15+ billion in sales over the next four quarters, growing at 70%, with the burn rate rapidly declining, and six years of accessible capital to operate with assuming zero further decline in their burn rate.

Uber will be near or at break-even within 18-24 months. Their sales will be over $20 billion at that point.

Are they worth three time sales? Definitely. How about 5x or more the $20 billion in sales two years out? Probably. Twitter is fetching 13x sales currently, and has only finally started making money after more than a decade of vast losses (even worse, Twitter has almost no growth).

So how does a Twitter-like 10x sales multiple on $20 billion sound, two years out? $200 billion valuation. Does that sound crazy? I think it's very rich, the capital markets may think it makes sense.

Netflix has a zillion PE ratio (and has for a long time), and a 16x sales multiple. Their margins are horrendous and will never be very good. There's a small chance they can ever grow into their current valuation (it'd require 500+ million global customers), much less anything higher.

Uber's quarterly sales will catch Netflix in probably four or five quarters. How about a 16x multiple on Uber's sales four years out, with a conservative $25 billion in sales at that point. How does $400 billion sound?

Their competition is literally every office building on the market...

Meanwhile, Uber and Lyft have been shut out of Europe and Asia, and at best might become the major (but not sole) player in the car service market.

>> Their competition is literally every office building on the market...

Definitely false. The majority of office buildings on the market aren't interested in leasing me spaces of varying sizes for terms from 1 month to 5 years.

Sure, but some are and coworking space competitors definitely are. I don't see the unique advantage, the moat if you will, to justify WeWork's valuation. I've seen comparisons to Uber in this thread but even if you presume for the argument that Uber's valuation is justified, the network effects don't seem nearly as strong for WeWork.

This. As an olderish tech person that was around during the dot com bubble and crash in the early '00's, I don't think this is going to end well.

Net loss, holy cow. $1.8B burn on $900M in revenue.

The general strategy must be undercut the market to buy market share, and then transform the market entirely.

I don't understand the precise mechanisms in the case of WeWork (it's not as clear as, say, Uber + self driving cars). Can someone explain?

They bought Meetup recently so maybe they are planning some sort of synergy?

I just received an email from them touting the ease with which I can rent space from them (free for some introductory period) for the meetup I run. The problem is that many (most, I'm guessing) meetups are funded by an individual. Unless their space is drastically less expensive than a lot of the alternatives I found when trying to find a space for my meetup, nobody is going to be able to afford to use their space.

It is "justified" because as long as you are a tech company with good name recognition Softbank is going to throw as much money at you as you ask.

Is softbank the new Yahoo? I remember back in the days when every startups revenue model was "eventually sell to Yahoo"

WeWork does a few things well - obviously they know how to roll out a ton of offices very fast like McDonalds, they’re good at marketing and PR, and they’re great at interior design.

They’re smart about getting other companies to sponsor events and provide the goods. A WeWork funded activity is like 5 boxes of cereal and some milk and they call it a “cereal bar” - that’s like $20.

Their front desk people are nice, but always seemed overwhelmed and don’t help beyond surface level.

I’m learning that when it comes to your last month, the customer service goes out the window and they turn into sharks. One day late on my notice and they force me to pay a full month to not have an “illegal moveout”. Buyer beware.

I had a dedicated desk at a WeWork for about a year. Before that, I had a desk at Regus location for about a year.

- While local coworking spaces could match the decor, vibe, etc. your local coworking space didn't have locations in other cities. I got 5? credits that I could use to work out of other WeWork locations.

- WeWork definitely had a tech-first attitude. If you wanted to reserve meeting rooms, register a guest, sign-up for events, etc, they wanted you to do that through their mobile app or website. Regus may have had a site, but they didn't push you towards it.

- WeWork had a "marketplace" where you could get discounts on various tech/non-tech things like accounting software, business cards, services, etc. Probably another good revenue stream. They could be pitching it as the "App Store" for startups.

- In my location, in the LA area, tech wasn't the majority. I would say 75% of the people I met were in some sort of service (real estate agents, lawyers, consultants, recruiters, etc,).

I don't think they're worth $35B (Delta Airlines' market cap is $38B, Atlassian market cap is $15B for some benchmarks), but they definitely do have some positives.

My company is pretty corporate. They have some limited seating in a we work building. Employees that perform very highly have a chance to get a seat in the we work building.

It may be a small perk, but the extra hours / effort people put in to get / retain their spot more than pays for what we spend on the seats.

If this easily re-createable environment was the norm, it wouldnt motivate internally. If the company only created it for a snall portion of the company, employees would resent leadership.

It's been a very effective business investment for the company i work at.

That sounds like your company has poor facilities and incompetent management if the employees are trying to escape from the main office. It's hard to see that as a sustainable competitive advantage for WeWork.

The main facilities are more than fine, its a job not a resort haha. Management could be better, but I have a very small sample to base that claim off of.

That being said, a sexier environment is just one of many ways to motivate people.

Rewarding people who work harder is one of the better management decisions in my oppinion. Merit based bonuses are the main way my company handles this, but there are more perks for the individuals who take initiative & constantly get shit done (as it should be)

Competent managers reward based on business value generation, not hard work. In a typical tech company, segregating employees into two different classes of office space would lead to excessive internal competition and office politics which kills morale and inhibits teamwork.

I dissagree that only business value added should be rewarded. Sometimes your manager will come to you with an idea that gets squashed 2 months down the road. I could do great at what i was tasked to do, but did not end up adding any value. You don't hold back from praising their work. That would kill morale.

To your second point, i started in the first environment & eventually got a seat. I never resented people who were over there. I saw some friends get there before me and i was happy for them. There was no internal competition, just another nice reward to thank employees. I wouldnt want it to go away even if i lost my seat.

I am looking for office space right now, and I left the local WeWork office 30 minutes ago. Its very simple, they do things a lot better. That is the space I want to rent. When I talk to cheaper office's they feel cheaper. Also their contracts are simple. I want to think about my business, not building out an office space. Finally, the fact that I now have a meeting room I can reserve in multiple cities across the globe makes it almost a no brainier.

The drawback? They really know how to jam a lot of people into a very small space, which might be why their valuation is so high.

Anyone else find it interesting that WeWork doesn't own any real estate? They literally lease and sublet office space (although they provide amenities...do those justify the valuation?). Granted there is some brand value, but what's stopping a building owner from offering hot desks + coffee themselves?

>but what's stopping a building owner from offering hot desks + coffee themselves?

That is not at all what WeWork offers. I'm typing this from a Regus office space (probably the best known incumbent), and having worked out of WeWork offices at other times, the difference between the two experiences couldn't be more stark.

A lot of companies try to claim to be "tech companies" when they're really just doing some mundane thing, in the same way as ever, but with a "tech" sheen on the website. (Maybe some green kanji characters scrolling down a black background, that sort of thing.)

WeWork really is different. I've seen some of the tech they deploy to improve the density ratio of the buildings, and to track different aspects of their customers' experience, and on and on. I'll grant that there aren't many barriers to entry in a small-scale, "hey, here's a desk and hot coffee" local market -- but very few companies can create the kind of global footprint that WeWork now has, which is a big part of the main strategy, going after the office needs of the Global 2k.

I've used both Regus and WeWork and would pick Regus over WeWork any day. I am so much more productive at a more laid-back, quiet (both sound and visual noise) environment than the hustle and bustle that WeWork takes pride in. WeWork calls this energy, I call it noise.

Seconded. I'm at WeWork now, and had to upgrade offices just so I could be somewhere that was quieter. Once my contract is up I'll be looking for a more out-of-the-way office where I don't need to put on headphones several times a day.

Thirded. WeWork has horrible sound design.

for reference, IWG's market cap (the parent of Regus) is $3.8bn

I hear you on that end of tracking customer experience.

That being said, they trump up their internal social network as part of their valuation, but it barely gets used in my WeWork and I can see globally that it doesn’t get used much except for selling and some reference requests.

It’s used at a rate of like less than one posting a month per person.

>very few companies can create the kind of global footprint that WeWork now has

If other companies were able to lose $900m/yr and still operate I bet they would be able to create that type of global footprint

Yes, but that's a rather large if, isn't it now? Access to capital is a moat all its own.

Most commercial buildings are held by investors/funds who tend to own thousands of units. They probably have an in-house staff of property managers who places tenants, schedules repairs/improvements, etc. Managing co-working space would be a totally new way of doing business for these funds which represents a risk they're not currently interested in taking.

To be fair there is not a single commercial REIT worth more than $35B [1]. WeWork is certainly large enough to own real estate, but they want to be valued like a tech company and you can't do that if you look more like a REIT.


Dexus, a company that manages real estate only in Australia has $26 billion of property under management, split about 50% owned by them and 50% managing for other people. Their total portfolio is under 150 properties. That's all in a country with 20 million ish people. You could get a lot bigger than that.

But of course it wouldn't be the quickest way to grow since you'd need insane captial. If your competitive advantage is the extra return you're squeezing from the properties, makes far more sense to lease them so you can have more, rather than be buying them upfront.


Plus, the property owners can just raise the rent on WeWork and only take the upside with little operating risk.

>Anyone else find it interesting that WeWork doesn't own any real estate? They literally lease and sublet office space (although they provide amenities...do those justify the valuation?). Granted there is some brand value, but what's stopping a building owner from offering hot desks + coffee themselves?

Owning commercial real estate in today's market == losing money.

Rent to buy ratio is all time high.

Not owning real estate is the reason for the high valuation. Hilton and Marriott discovered this a long time ago, and more recently AirBnb.

Traditional property owners don't have the skills to build the technology system needed to manage a large co-working space.

hot desks?

I spent some time working out of WeWork in Berlin (one of their 3 offices there). A few observations:

- Being there is expensive for individuals. It seems to be mostly small companies and projects renting space. They get a decent deal of having an office and all stuff that comes with that as part of the package. - They seem to use space efficiently, I did not spot many vacancies and it was packed with people. - It looked to me like they are not having demand issues and they are basically billing per seat. - Setting up these spaces must be costing them a bit as a one time investment. The space looks nice and clearly they are going for quality here. Seems to be part of their brand.

I imagine the latter is what is driving recent losses, because they have been expanding like crazy. The flip side is that if each of those new offices has similar occupancy, they are growing their revenue as well. The initial investment can be amortized over the lifetime of the lease probably, which presumably is many years. As soon as they stop growing, they should be making money. My guess is they are instead expanding as fast as they can get away with. This means that these losses are in fact solid investments. Somebody else in this thread is citing 40% profit margins; this sounds legitimate to me. The per building revenue should be substantial based on what I've seen.

Taken with their "community adjusted EBITDA" and I really want to hear a good-faith explanation of how this situation doesn't end horribly. A valuation divorced from any reality and a company using fantasyland financial metrics.


Typing this from a Make Office (WeWork competitor). I am not surprised at their cashflow situation. A local office recently poached a bunch of members from the Make location I'm at. They were offering 6 months free rent. It seems like a "share at all cost" kind of strategy.

Especially considering the churn rate I see at Make, I'd be surprised if they do much more than break even on the customers they got with a 6-month credit.

%occupied must be one of their primary metrics.

Matt Levine today: https://www.bloomberg.com/view/articles/2018-06-14/banks-get...

"I have to say, if SoftBank is going to become the entire market for hot private technology startups, then every valuation is going to be marked-to-SoftBank, and the numbers will start to lose their meaning.

SoftBank: Would you like some money at a $10 billion valuation?

Startup: Sure.

SoftBank: Here you go. Would you like some more at a $20 billion valuation?

Startup: Sure.

SoftBank: Here you go. How about a $40 billion valuation?

Startup: This is dumb but it’s not like we’re going to say no.

SoftBank: Here you go.

Startup: Thanks brb buying a yacht.

SoftBank: Our mark-to-market investment returns are tremendous, we must be good at this."

One dangerous part I think investors have forgotten in this whole going-away-from-public-markets financing craze is that companies can now hold investors hostage. It's now all or nothing play in which the investors need to pour more and more money in the subsequent rounds in order to justify the ramp up cost which gets you to the heavenly break even somewhere in next five years. There's no longer an option to get out. IPO on 100b valuation or bust. Public companies would never have luxury to take such gambles, their stock would crash. (but from the other point of view, tesla is somehow still doing it)

Perhaps often by design? Maybe sitting rows of expensive engineers in opulent exposed brick open plan offices like they are office furniture is like creating a venus fly trap for investors? It would partly explain why engineering productivity is paid such little attention.

I'm typing this from one of WeWork's Shanghai locations, the loud music is blaring behind me so I wear 3M Peltor construction headset, the sun through the glass roof blinds my screen, and I have to squint to be able to read what I type. I'm just back to HN from Medium which didn't load because the Internet speed is abysmal (packet loss to Baidu LG is at 12% right now with medium ping at 170ms, if I switch to my phone hotspot it's 1% and 32ms). I just bought some drinking water outside because their RO filter is probably not serviced ever and I have stomach issues after drinking it, my TDS pen reads 180ppm from their water which is about the same as my tap water at home. But my membership is part of the contract so I'm not paying for it, so I can't complain. $35B, $350B, these numbers feel very abstract to me. They're probably collecting and selling a lot of data about us, otherwise, I don't see much value over other local players here which all have good design and nice crowd. And no banging music.

I office out of wework in downtown Dallas. As far as co-working goes it's the best setup I've seen so far (out of maybe 6 that I've tried). I don't know much about their valuation but what you get is worth the money you spend. At the end of the day, that's all that really counts.

WeWork is the next BetterPlace, only with way less interesting product.

Seems the space is getting crowded. I rent from Industrious, a WeWork knockoff that's nicer IMO; I get a weekly newsletter and it seems like a new location is opening every week.

when are nerds going to figure out that renting services at a techie price, from other people who form a company that has big valuation, is a new version of Feudalism.

So all these tech startups are just good at raising fund? Is that a business model nowadays? It’s like this startup I worked for and I swear what we did best was hire people to do nothing...

Dear WeWork guys, if you are reading this :), these are few tips how to run a rental office space:

1. Good furniture. You either buy super duper expensive italian handwork stuff, or generic IKEA. Nothing in between.

2. Think of smaller spaces, down to few rooms for 6 people in the same building. Getting a wholesale rent rate on those, will be I say, easier than that for warehouse sized halls you rent today.

3. Rent in premium highrise towers. Your clientele is more than eager to work out of these places.

4. Reduce working hours, and charge extra for late stayers!!! You can't work when you are being disturbed by cleaning staff. Having everybody leave for the time cleaners do their work, will make life of both cleaners and renters easier.

5. Forbid eating at workplace. Having people carrying coffee bumping into me 3 times in 2 months, made me leave your cowo.

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