His conclusion: "But now WeWork seems to be facing the traditional tradeoff: Stay private, keep control, but lose access to billions of dollars of funding, or go public, raise unlimited money, and have to act normal. If it does either of those things, that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could stay private without giving up the benefits of being public, or they could go public without taking on the burdens of being public. Now they might have to make hard choices again."
Except WeWork isn't a tech company.
So what about companies like WeWork and Peloton that interact with the real world? Note the centrality of software in all of these characteristics:
- Software creates ecosystems.
- Software has zero marginal costs.
- Software improves over time.
- Software offers infinite leverage.
- Software enables zero transaction costs.
- WeWork claims it has a software-created ecosystem that connect companies and employees across locations, but it is difficult to find evidence that this is a driving factor for WeWork’s business.
- WeWork pays a huge percentage of its revenue in rent.
- WeWork’s offering certainly has the potential to improve over time.
- WeWork is limited by the number of locations it builds out.
- WeWork requires a consultation for even a one-person rental, and relies heavily on brokers for larger businesses.
Frankly, it is hard to see how WeWork is a tech company in any way.
>So what about companies like WeWork and Peloton that interact with the real world? Note the centrality of software in all of these characteristics:
>- Software creates ecosystems.
>- Software has zero marginal costs.
>- Software improves over time.
>- Software offers infinite leverage.
>- Software enables zero transaction costs.
>- WeWork claims it has a software-created ecosystem that connect companies and employees across locations, but it is difficult to find evidence that this is a driving factor for WeWork’s business.
>- WeWork pays a huge percentage of its revenue in rent.
>- WeWork’s offering certainly has the potential to improve over time.
>- WeWork is limited by the number of locations it builds out.
>- WeWork requires a consultation for even a one-person rental, and relies heavily on brokers for larger businesses.
>Frankly, it is hard to see how WeWork is a tech company in any way.
They basically convinced a bunch of non-tech investors that they're a tech company.
They hold themselves out as Real Estate Agents & Managers.
You can see their SIC & NAICS codes here: https://siccode.com/business/wework-46
Early enough and maybe you don't get as much money, but the public money might be more willing to take a chance on who knows what might happen.
Too late and enough people have pointed out that the emperor has no clothes and people start to belive / realize it.
"From my perspective, this seems like an optimistic story, where WeWork generates pre-tax operating income of 10.07 billion on revenues of $80.5 billion in 2029, generating a 26.61% return on capital on intermediate capital investments. Allowing for a starting cost of capital of about 8%, the resulting value for the operating assets is about $29.5 billion, but before you decide to put all your money in WeWork, there are two barriers to overcome:
Possibility of failure: The debt load that WeWork carries makes its susceptible to economic downturns and shocks in the real estate market, and the cost of capital, a going concern measure of risk, is incapable of capturing the risk of failure embedded in the business model. I will assume a 20% chance of failure in my valuation, and if it does occur, that the firm will have to sell its holdings for 60% of fair value.
Debt load: As I noted in the last section, the company has accumulated a debt load, including lease commitments, of $23.8 billion.
Adjusting for these, the resulting value of equity is $13.75 billion, and with my preliminary assessment of shares outstanding, translates into a value per share of about $26/share."
Highly recommended read for those that haven't already: http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or...
Personally, I feel that no matter what price WeWork IPOs at, it's going to pancake pretty hard. There's a good business in there somewhere (AWS for real-estate), but it's saddled under so much crap, debt, and hot air.
Is there? I keep looking at the WeWork thing as a complete outside, someone who's never had to deal with that sector, and it's just not clear to me what is actually different/innovative about what they do.
Companies also generally don't like to deal with anything that is not core to their business. Already previously most functions were outsourced (cleaning, maintenance, stocking the fridge etc.) but increasingly companies don't even want to deal with the hassle of sourcing a supplier. Or getting Internet. Or insurance. WeWork makes all of that a non-issue. So does Regus Spaces product, but it has to be at least acknowledged that it's a direct reaction to WeWork.
I think the future will look something like this, and why it can be likened to AWS for physical space (WeWork doesn't go this far yet, today requiring e.g. physically visiting the space before leasing which is honestly a pain-in-the-ass speaking as someone looking to place multiple people all over the US, just let me input my credit card already):
- Startup company in the Bay Area logs in online and clicks to reserve a 1x Private Office in NYC, for the two new hires starting there next week. No tour, no calls, no interaction with anyone at WeWork. WeWork is already a "known quantity" (kind of like McDonald's), no need for any of that process.
- Microsoft manager in Redmond does absolutely nothing workplace related as his new hire just shows up at WeWork Houston, as the company already has a direct expensing agreement. His cost center is just billed X for the month automatically.
As been pointed out elsewhere though, WeWork, owes money to landlords, even if that WeWork space is empty. AWS doesn't have the same contracts with their computers. Or do they? It's entirely possible AWS buys their server farms on credit rather than all upfront. AWS, of course, is a different beast, having the backing of Amazon.com.
Thus the more useful debate, rather than rehash the "is it a tech company" argument yet again, is what is a reasonable valuation for WeWork? Enterprise Value for IWG is 9.8B; so a 10B valuation for WeWork is not totally ridiculous.
There's a risk that everyone will just work from home during a recession. During that same recession though, we'll also want to move our company's website from AWS to a desktop computer I have in my garage that I leave on all the time, to save money.
Transitioning to shared hosting in the single digit cost per year category is more likely, no need to pay a premium to serve HTML.
In the case of a remote employee, why wouldn't the employee knows what works best for them? Maybe it's not a hipster open space with beer on tap.
If they're setting up a remote but co-located team, the situation may well be different--although there are a variety of options.
Practical take: For the same reason companies don't let you book your own plane tickets and expense claim them, and almost always instead use corporate services like Amex Global Travel / Carlson Wagonlit Travel, as well as mandate the use of the corporate card on travels etc. When you have a non-trivial amount of employees, companies don't want to do one-off arrangements like that, or argue about what is reimbursable. WeWork being a "known quantity" / The Default(tm) is really important to Corporate. Your experience may vary at smaller companies.
As Patio11 put it, "You probably have a lot of questions but it’s a Holiday Inn; anything else?" https://twitter.com/patio11/status/1161796809741627392?lang=...
That makes sense, possibly in some cases if they sold now.
WeWork is big so maybe it isn't relevant but I know folks in real estate in my area and they were a bit surprised at the prices paid for what became WeWork buildings. Not every purchase in the area, but there was buzz in that community about "Who else was bidding it up that high?" and they came to find out, nobody. WeWork just paid a lot more than anyone thought it was worth. Granted maybe WeWork can afford to do that here or there.
- transaction times for large property transactions are on the scale of months for prime property in good times
- wework has distorted the market with private capital potentially misallocated given the value reduction since softbank invested
- in many places that wework has invested there is significant growth in commercial property inventory; for example London. This is because the property boom in China has changed the cost of building large office buildings (builders have worked out how to throw up a 50 floor tower fast and cheap) and consequently many old 10 floor plots are now becoming 50 floor plots
If wework comes under pressure their assets may not only be over valued, they may find that it takes too long to find any buyers at all. In which case the assets belong to the banks.
That seems like a recipe for disaster, and if their competitors survive any downturn, an opportunity for them.
WeWork BKC’s (in Mumbai) annual rent amounts to ~$11M (for an 18 story building, but the price is higher than market by 10-15% at least).
Is this the new scam? Announce an IPO with crazy high valuation knowing full-well it's not going to actually IPO that price, then when you adjust it lower (still way, way high valuation) people get a sense that it's a good purchase because it's so deeply discounted.
They've literally reverted to department-store style sales tactics for IPOs; now I've seen it all.
 - https://www.bloomberg.com/news/articles/2019-08-14/wework-ga...
 - https://www.wework.com/locations
Massive conflict of interest. We seems to be designed to make Adam rich as it's primary business purpose.
Hard to figure how they are going to cut expenses 30% or double the cost of renting from them...
How so? The point of a market is for willing sellers to make deals with willing buyers. What person would sell a company (or any asset) when they thought the public market undervalued it?
Other RE companies are valued at 4X. So $10B seems to be the value based on those numbers and their industry. However, they're losing tons of money. So that has to put them below the average.
Well, I just got through saying that there’s not really any reward for being pessimistic and right about valuation when you are pitching an IPO. Your optimistic competitors will get the mandate, and then spend some time walking the company back
On the other hand it is a repeat game and there are occasionally penalties for getting it wrong:
it will be rough for Morgan Stanley if winning the biggest IPO prize [Uber] of the unicorn era loses it the biggest IPO prize of all time [Saudi Aramco]
Complete aside, but the ~second largest oil producing country is selling part of its state-owned oil company. Yes, they're trying to diversify so they're not just a petrostate, but this should be a red flag for the oil industry.
Discount is the word they want you to hear in your head. The valuations are all imaginary. By setting such a high previous valuation, people now look at the current valuation in the context of that, instead of what it should be: $0.
I feel like the real news is that rather than drop the IPO in the face of severe disillusion they(SoftBank) are actually trying to recoup some of their losses while cutting the company down, rather than comfortably pursuing the valuation that they previously seemed to push as being a reasonable possibility.
If you're a company and want to expand you either use your profits, or borrow money, the more money you borrow, the more widget machines you can buy.
The open question is how big you should grow before demonstrating profitability.
I's always a good idea to be skeptical of someone making claims you should raise lots of capital to rapidly scale your business today or in the near term, as opposed to other strategic alternatives when that person is selling capital for a living.
I know tech people all over the US and Europe and literally no one has ever spoken the word 'wework' outloud to me.
Uber is basically an international taxi company and we-work is a real-estate company. Neither of their business models are money printers to the degree required to justify their valuations. Sure, they have a chance of creating some network effect feedback loop that makes them insanely profitable but is that chance big enough to justify the valuation? The market seems to say no.
A local taxi line might be worth a few million dollars. It's disingenuous to say that Uber is "just a taxi company" when you have their level of consumer loyalty and geographical control.
I disagree. First of all, WeWork's market isn't really 'office space', it's short-term, flexible, furnished office space, and in the sense of "market domination" I think WeWork is very similar to AirBnB in that regard. That is, while they both have strong competitors who predate them (e.g. Expedia/VRBO and Booking.com both have huge short-term rental businesses), they both certainly lead in the "mindshare" of their particular markets.
The main difference is just that the economics of AirBnB's model (they neither own nor lease any real estate for rent) is much more profitable than WeWork's.
They both manage ~45 million sq feet of office space. Regus isn't chasing tech IPO valuations as they went public in 2000.
Economically they’re more like a b&m retailer, where the shelf space being leased is for workers, not mannequins and clothes.
Their reach to individual pockets is orders of magnitude smaller. Big clients can abandon them as a supplier in a few weeks time to setup a new office.
WeWork does not have the long term emotional buy-in potential like an Apple or Facebook. It’s a business to business business. Not going to hook a billion individual users on their gadgets and services.
There’s a non-zero chance the property market implodes, and shifts to remote workers seem very likely to expand. Still need phones and software. Not downtown offices with cucumber water.
A company that gives an engineer budget to deck out his desk is fundamentally incompatible with a slow and steady way of making money in real estate management.
I feel like a scammer on the corner is getting increasingly desperate shouting lower numbers at me as I walk away. "No how about just $5 then and I'll read your palm!"
People used to have shame. This is so weird.
Theres been much hand wringing about the sky high valuations, and its not really surprise when push comes to shove, those valuations don't play out. How a $65 billion potential valuation (or $47bn 'actual') becomes a $10bn float will be a write up I look forward to though.
Have you forgotten about the successes already? Slack, Zoom, Pinterest, PagerDuty, Okta, Cloudflare, Twilio, Shopify, Twitter, LinkedIn, Facebook, Roku, Elastic, etc etc.
They all IPO'd this decade and are enormously successful and have justified their valuations.
This is a Softbank-specific problem. Not a problem with all companies.
Facebook fell after it's IPO by quite a lot btw.
This has probably been the most criticised IPO I've heard of in recent times. Interesting that the market is actually not allowing them to sail right through on their own terms, it's as if all the ridicule actually makes people think about whether to buy it.
But if it goes away, that's kind of an amazing loss of value for those holders. Do they have to agree to the IPO? (Maybe usually they do, but here Adam has super voting rights?)
Crunchbase says $12.8bn of prior investment.
Wouldn't that mean with a 1x liquidation pref that all the employees (including the CEO) would get wiped out?
Didn't the CEO/founder liquidate like $700 million during a previous round meaning he doesn't care?
So pulling out would put a hole in their expansion strategy. It may also be that they would be unable to get such an offer for $6bn again, bearing in mind the now much lower valuation. But then the vision fund has deep pockets, as do its investors so who knows.
Have there been other examples of companies getting gutted by their IPO efforts?
(Another interpretation would be that they are a real estate company trying to pass for a tech company and everyone called their bluff).
Don't trust this.
So, that should generate up to 100M per month and well over a billion a year. They're reported revenues are actually closer to 2 billion. So, obviously they either make way more per user or I missed something here. Either way, this is apparently generating quite nice revenue.
They have cost of course but it does not sound like a horrible business. They charge a premium to their users and from what I've seen in various locations in Berlin and SFO, they tend to cram in a lot of people in their locations and maximize the usage of the spaces they lease. So, I'd say it's safe to say that each We Work location ought to be profitable with some nice margins.
From what I understand the reason they are burning cash is simply rapid growth. They are investing every penny they can get in more locations. Based on all of this. A valuation of 10B for a company that seems on track to grow to billions in profit per year sounds on the low side to me. Also, with that kind of revenue, they should increasingly be able to fund growth from their own revenues.
Long term threats to WeWork's business exist of course. Fundamentally they don't have a lot of tech or intellectual property protecting them from competitors. Most of their competitive advantage simply comes from their scale and presumably optimized operations and access to capital.
I'd say it's similar to the hotel business which is also dominated by big chains of hotels. So, long term you'd expect more competition to emerge and a race to the bottom in terms of prices and operational cost. E.g. the Hilton group owns hundreds of hotels world wide with probably tens of thousands of beds and seems roughly comparable to wework in terms of number of buildings and revenue. The only difference is of course that they've been around for very long whereas WeWork has existed less than a decade. Fundamentally, if they mature a bit there's no good reason why they should not be massively profitable even if they get a bit of competition; which they currently only have from much smaller companies.
Who benefits when an IPO like this is underpriced? And who benefits when an IPO is overpriced?
Is there anyone incentivized to price an IPO accurately?
-Having a high price allows the company to raise money in the IPO with less dilution. A high price is also good for anyone selling stock in the offering or selling stock after the lockup (assuming the price remains high until the lockup)
-Having a low price causes more dilution for the same amount of capital raised, so this is worse off for the company stockholders. It is good for people who want to buy stock in the IPO though.
-Accurately priced IPO is harder to define. Some say an accurately price IPO is one that pops up 50% on the 1st day. Others say that IPOs with large pops are not great because they show the company left money on the table.
-Ultimately, the most important thing is that the company and stock perform well over the next several years. Bankers make their fees on the IPO, but pretty much everyone else wants the price to be stable or rise through the lock up period and then wants it to keep doing well!
This is distinct from the underwriters’ incentives to estimate the valuation when they pitch the company on why they should do the IPO. If you give a number that’s too low you get nothing, so your incentive is to name as high a number as possible without being obviously ridiculous (to the executives, not to anyone else).
Or is that thinking too simplistic?
Softbank has taken out loans secured with Uber stock during the lock up period.
If the value of Uber tanks, Softbank retains the money, and the bank takes the stock. Softbank has effectively sold their stock ahead of time, removing any downside risk.
On the flip side, if Uber stock goes up, Softbank can sell their Uber stock (post-lockup) at a profit, pay back the loan, and enjoy all the upside reward.
I'm reasonably sure I've read reports that they've taken out secured loans on their Wework stock too. Effectively sold the downside risk before IPO.
Also, depending on what category of investor you are, you have liquidation preferences. You may be the one providing the stock that's being sold at IPO.
It’ll be interesting if they indeed have taken out these loans against We stock. And especially how much.
Obviously the bankers wanting to conduct the IPO, want to give the IPOee a high valuation figure, but the scale is normally lower than this. Existing stock holders will obviously want a high valuation, and want to be given a high valuation by the bankers. In other words, rowing back on the price isnt that unusual, the scale here is vastly different though.
Can you point me to more information on the "culture" point of view? I have trouble seeing what kind of culture we work has, let alone how a culture can be monetized. But what's special about its "culture", any way? Real estate is at least valuable; for a while, I wondered if it would turn into the world's weirdest REIT. What future is it creating?
We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success.
We start by looking at space differently: as a place to bring people together, build community and enhance productivity. Philosophically, we believe in bringing comfort and happiness to the workplace
Nine years ago, we had a mission to create a world where people work to make a life, not just a living. We believed that if we created a community that helped people live life with purpose, we could have a meaningful impact on the world.
Each of our spaces is designed to make our members feel welcome and at home, and to encourage a sense of belonging. We believe that individuals are more productive when they are able to express their full and authentic selves, so we aspire to be as inclusive as possible.
As a grumpy cynic personally I don't really go for that stuff, but they've put it in the prospectus so presumably they think other people do.
What does that even mean? I would think that serious investors would want a more ... concrete mission. This sounds like they want to be a yogi. Or they are BSing.
What is the future you see?
OTOH this reeks of desperation to "go public", and drop the hot potato on clueless investors while they 're still clueless and the market is still hot. Sounds sinister tbh
WeWork is experiencing this type of auction but strangely in the media instead of in communications between actual investors
It scales. But you’re right, not in any way like a tech company.
The fact that they say tech is at their core is a joke. The only reason to use their app to to book a meeting room or remember your printing code.
I think the general WeWork idea is great. Investing in it is another story.
Can you elaborate on this?
Soft Bank invested what if has invested, expecting to get the return it would get on a tech company — not real estate.
The reckoning that is happening now is much deserved, but if WeWork got the benefit of being called a tech company when it was flying high (and it did — including here on HN), I’m not going to give the company or its investors an “out” now that it’s all falling apart.
This was a decidedly non-tech company that convinced its investors it was tech. And now that the rouse is up, the bloodbath that follows begins in earnest.
WeWork is obviously not a tech company like Microsoft or Apple are tech companies and nobody is arguing or should really even care about that, investors surely don't. But it also fails to check some of the boxes of new class of "tech" companies and that is being reflected in the current valuation battle. or maybe the underwrites just really overshot the mark after SoftBank pressured them with its own high valuation estimate.
You are not a tech company unless you sell technology to other companies, and that is your main stream of revenue.
Uber’s a tech company because their technology for taxi dispatch allows them to dispatch millions of cars without a single human manning a telephone.
Amazon is a tech company because their inventory management system (unique at the time: when they didn’t have bins of identical items in their warehouses unlike their competitors in the early 2000s.
If Amazon was just using Magento then you’d have a point - but when a company’s beating heart depends on the canny exploitation of their own technology - they’re a tech company.
Facebook has network effect and Über has it's driver network, which is more important than the app itself. They are all very different types of companies.
WeWork is similar to Über: it has real costs of buying atoms instead of.juat handling bits.
I do think a tech company has to be creating technology yo be a tech company, but it can choose the method of generating revenue from that tech makes the most sense.
Are they, though? Their CEO owns another company that buys up properties and then WeWork rents to them. I don't know how much real estate WeWork owns anymore. Though I think you're closer calling them that than a tech company.
"Tech company" is an operating model, not an industry/market. "We" is a real estate leasing/operating company heavily enabled by tech.
It is probably true of Xiaomi.
Motel 6 has a fully functional website and app where you can look up all their properties and reserve rooms/spaces. No one is calling it a tech company.
This article is similar in nature to the one where Paul Graham claimed the word 'startup' to mean some narrowly defined entity that somehow embodied the ideal company to invest in for YC.
I don’t believe WeWork is a tech company by any stretch of imagination.
Is Uber a tech company? Well I personally don't see it, they just offer a dispatching service for cabs and without computers you could call in and book a ride much like people did for decades.
Is Microsoft a tech company? Yes, what is an OS without computers?
Is Amazon a tech company? I'll say no in one sense they are the next evolution of the Sears catalogue, but AWS, which is a huge part of their revenue, is obviously a tech company.
Is WeWork a tech company? Definitely not, they compete with hundreds of other real estate management companies, and all of their work could be accomplished with phones and paper.
I don't know I am sure someone can probably find some good corner cases, but my basic definition is that if a company is just using software to automate the bureaucratic processes that are required to run the company but could otherwise function without that automation I don't see them as a tech company. I think this goes to your thought that just because a company uses software for their accounting department, they aren't a tech company.
The point here is that WeWork has been hyped and seen valuations as if it were solving the aforementioned sexy HN problems, when it’s really just a regular, unsexy tech company that is solving more mundane problems of office rental with a nice tech stack and UI. I’m sure it’s a solid $5B business.
They might be using AI/ML in other ways but RE in general is data-averse. Especially in office, most cities have a small area with most class A space and local brokers know it like the back of their hands.
After they blaze the trail of providing a different approach to office space, is there a lot to stop competitors from doing the same thing?
Maybe there are more, but I only see two advantages they have over competitors: name recognition and economies of scale. And since leasing space is a large expense for tenants, it's natural for people to shop around a bit, making it a natural area for competition (and driving down margins).
WeWork's web site uses the word "revolutionary". Once the revolution has finished happening, what reason is there to believe that WeWork is going to own it? Obviously WeWork has a head start, but is there anything they've done that others can't do?
It also is a good example of these dirty Unicorns that are not unlike Uber where folks for quite a while wonder "How can you be profitable and operate like that?" and we're all amazed the market keeps rewarding them ... and it seems like we're to the point where the market might not reward them.
We're just waiting for the look down.
In addition, it has irked a lot of techies that WeWork is claiming to be a technology company (they are actually a traditional real estate biz) and a lot of their valuation is based on that aura.
Can anybody point to significant investments ($1b+) in their portfolio that will return 5x-10x?
I wouldn't touch this one with a 10-foot pole.
I don't live in SV, and I'm just a software engineer making under 6 figures, but living comfortably all the same. I am ignorant about this "high finance" stuff - and honestly, I'm probably better for it; less stress and all. Not saying others shouldn't do it if that's what they like, just that I don't think it's for me.
Still - it seems ridiculous to me that a company self-valued at 10 billion, that there is something wrong with that? Maybe it's that I don't understand the financial history of historical tech companies, but it "feels" to me that such companies had no where near such value?
Part of the problem is that I can't think of such historical companies that were similar to WeWork or other "gig-style" companies - that were contemporary with, say, 1960s Fairchild or IBM? Those companies, and other similar companies of that era and into the 1980s (like Sun and SGI and Motorola and Intel, etc) - they were probably valued pretty highly (had they done such thing as an IPO - I don't think that was an available thing then, though - but they probably did have investors, and "ground-up" growth).
But they actually created products - physical things you could touch - as well as software (depending on the company); they weren't just using or repurposing existing tech on a large scale to solve a problem via a form of contract labor. Maybe a better model that would have been contemporary to those companies would be larger-scale construction contractors of the era? Were they ever valued in a similar manner?
To me - in my ignorance - it just seems like all of this exists to make a quick (overvalued) dollar and get out. I don't expect WeWork (or Lyft, Uber, etc) to be around in 20 years. We'll just continue to have this "churn" of companies, no loyalty or building of a base of customers that last ages and are almost "passed down" through generations.
Think about a company like IBM - arguably, it dates back to the late 19th century, but even discounting that, it is a computing and software company that is close to 100 years old; will any of today's "well known" tech companies be able to weather the years like IBM has (albeit with ups and downs, and with scandals and such)?
I can see Apple doing it - maybe. Perhaps Microsoft and probably Google. Amazon? I guess it could become akin to Sears or Montgomery Wards. Of course, no one probably thought of those older brands as having the staying power that they've shown, either - and there were plenty that one would have thought should have stayed around that didn't, and others that did that have imploded (ahem - Sears and Montgomery Wards - for instance).
I don't know if I am making my point clear enough - other than to say that it feels like these "companies" only exist - or were created - as "get rich schemes" for their creators and owners - not because those involved are really in it to make a "real difference" in the world (whether that would be a good or bad thing is debatable).
I guess I miss seeing purpose and organic growth, and a valuation in line with that, and heads or owners of such companies in it for a reason other than "getting rich and getting out".
For an IPO underwriters will look for a more reasonable number as they have to actually flog the shares to the market.
If the IPO goes ahead at 10b valuation, Softbank will have to write off a massive amount and thus they are unsurprisingly fighting against it.
House prices in X are crazy, but people will pay that, so that is a valuation.
Yes eventually the buyers and sellers will have to balance out, starting from a price someone has actually paid seems entirely reasonable though.
The IPO underwriters started off mentioning a $65bn valuation, most probably based on the $47bn previously paid.
A house or a piece of art is a bit different because you always only need to find one buyer. But a company's shares traded on the open market are extremely liquid.
I'm not saying its the answer, I personally find it unsatisfying, but it is an answer, and on some levels the only answer that matters.
Now if I decided to sell my shares based on that, would I be guaranteed to also get that price? No, there could be a flash crash, there could be results just announced, there could be any number of reasons to make the stock go up or down, or more precisely attract or scare away investors. In general though I would expect to get a figure close to the price that I saw, because theres not much that can fundamentally change in the few minutes between trades. On a stock that hasn't been traded in a year, the only thing that really changes is the error bar, the price isn't going to be within 0.1% of the last one, it's going to be within 100% or something.
Having someone actually pay money for something really is the acid test. I can slap a price tag on something, but if no one buys it than is it really worth that? We can sit around coming to more or less reasonable valuations, but ultimately if Wework floats and trades at $100bn valuation, then no amount of armchair opinioneering is going to change that, people are putting their money where their mouth is, and as I seem to mention on every stock market thread, the best thing about the stock market is you can put your money where your mouth is.
Ah, but having someone actually pay money for 0.0000001% of something really is not the acid test.
If someone pays you $1 to sit in your car for a minute, given that cars have a reasonable lifetime of around 15 years under normal conditions before being scrapped, then obviously your car is worth about 8 million dollars. Or not.
If you pay me $1 to sit in my car for 1 minute, the setup costs (time) dominate the actual act. I'm not sure why someone would pay me to sit in my car for one minute but I'm sure we could tease out some other reasons.
If I'm only buying 0.0000001% of a company, I'm getting proportionately less than someone buying 10% or 100%. They can start giving people board seats, the can actually ask questions of board members and expect an answer, so I would expect, and indeed there is different valuations for me buying 0.0000001% and someone who buys a large %age of a company.
This price difference applies to many (all?) things, if I buy 1 X if would expect to pay proportionately more than if i bought 1000000 X.
We can all accept that the price of a coke is X, whilst also accepting that we'd get a discount buying more units. Likewise if I wanted to buy 0.000001% of the global steel supply, id expect to pay the market rate. If I wanted to buy 100% I'd have to pay more than the otherwise prevailing rate.
Having said all that. To actually return to wework. Their business model is taking a big building and parcelling it up into small pieces. How do we value that building? Based on the whole building, which non of those tenants would be able to afford, and it's lower than the sum of all those small parcels the tenants have, but the value of the building is informed by the willingness of some smaller tenants to come together and rent parcels, so....
As I said on a prior post, it's an answer, not the answer. The price for the whole is different to the price for pieces. The prices for thinly traded assets will be impacted if you start flooding the market. One market will value an asset differently to another. Nevertheless this is a data point, and at this stage the best we have.
Softbank have bought a hell of a lot more than 0.00001%, I believe they've invested about $8 billion overall.