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WeWork considers IPO valuation of as low as $10B (reuters.com)
190 points by aresant 33 days ago | hide | past | web | favorite | 219 comments



Matt Levine as usual called how this would play out. He said we work would start dropping the weird voting/control privileges ("corporate governance concessions") that founders have enjoyed on recent "tech" IPOs. He also said investors wouldn't care much and this latest news confirms that.

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."


"that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could"

Except WeWork isn't a tech company.


Ben Thompson wrote an interesting article "What Is a Tech Company?" on Stratechery [1] recently where he discusses the trademark characteristics of tech companies and makes a convincing argument as to why WeWork is not one:

  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.
[1] https://stratechery.com/2019/what-is-a-tech-company/


Please don't use indentation for quotes. The side-scrolling makes it completely impossible to read on mobile, and nearly impossible to read on desktop.

>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.


I can't believe HN doesn't have a solution for this after all this time. It's a tech forum ffs.


Eh, HN does have a solution for quotes; the way I formatted it. There's no technical solution for humans applying the wrong tool to the job. The mono-spaced non-wrapping style works well for code. I find it inexplicable that so many people persist in using it for quotes.


They have successfully marketed themselves as one and apart from a relatively small group, the common denominator perceives them as such.


Their troubles with an IPO suggests that they have not successfully marketed themselves to the broader investor class.


According to wikipedia "WeWork investors as of 2014 included J.P. Morgan Chase & Co, T. Rowe Price Associates, Wellington Management, Goldman Sachs Group, the Harvard Corp., Benchmark, and Mortimer Zuckerman, former CEO of Boston Properties"

They basically convinced a bunch of non-tech investors that they're a tech company.


I'm pretty sure the banks invested just to get a shot at collecting fees for ipo work


Actually, they haven’t.

They hold themselves out as Real Estate Agents & Managers.

You can see their SIC & NAICS codes here: https://siccode.com/business/wework-46


I wonder how much of this is about timing and perception of potential public investors?

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.


Any studies out there of returns on companies that have made “governance concessions” as you describe them? I’d wager they outperform substantially. WeWork not being a good example, since it was obv a well crafted scam from the beginning.


Any company that offers preferred stock and non-voting stock is participating in some form of "governance concessions", a number of which are hugely successful (eg Google's stock-split in 2012). WeWork went a step or two further than most with their LLC and holding company shenanigans before this announcement.



Seems to be in line with Aswath Damodaran's valuation estimate.

"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...


Note that Aswath is detailing a best-case scenario for WeWork here, where they're somehow making $80.5B revenue in 2029. That's... a bit of a stretch, seeing as they'd have to 26x their current 2019 revenue. Are they going to buy out every building in Manhattan? So we can say the fair pricing is somewhere between $0 and Aswath's $13B.

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.


> There's a good business in there somewhere (AWS for real-estate)

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.


Leasing office space in a place like NY traditionally required at least a one year lease, often longer. WeWork has at least popularized the notion of extremely flexible month-to-month contracts for fully managed facilities in historically expensive markets, which is very attractive to virtually all companies (now is that a sustainable business remains to be seen, but at least the demand is there). Not just small companies and startups, but companies of all sizes like the flexible opex that can be scaled on short notice. WeWork's S1 shows that a big chunk of the customer base and growing is in fact large companies. E.g. Microsoft in New York has their entire sales organization scattered across WeWork properties. That kind of thing is where WeWork appears to be doubling down on according to their S1, not really the freelancer hot-desk market.

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.


AWS-for-office-space is apt, considering EC2 instances/other VPS are paid per-hour(/minute) but AWS owns the computers for the duration.

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.


Moving a website from AWS to a desktop at home isn't apt to save money, as your power bill will increase by $20 to $50 a month.

Transitioning to shared hosting in the single digit cost per year category is more likely, no need to pay a premium to serve HTML.


Or, if they're remote employees, the expectations have just been set that they'll deal with their work arrangement with, possibly, up to $X/month reimbursable.

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.


Dystopian take: WeWork will provide companies with all kinds of metrics and tracking, like time to enter and leave. This will make remote work "palatable" to a wider range of employers.

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=...


There are a number of other great coworking spaces in Manhattan (I'm in one now!) so there's definitely a story where over 10 years, We consolidates it all in a winner-takes-all format. That's... not a story I'd put money behind, especially not with what seems to be an executive team intent on extracting personal wealth until they're caught doing so.


>will have to sell its holdings for 60% of fair value.

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.


There's a liquidity issue as well. The shareholders could get zeroed out because the debt could call in before the leases and freeholds can be sold. There is good reason to think this is what will happen :

- 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.

(edited formatting)


There seems to be a lot of indication that WeWork, if there are any problems, could be in the worst position of their competitors.

That seems like a recipe for disaster, and if their competitors survive any downturn, an opportunity for them.


I’ve heard similar stories about WeWork over paying for property here in India (because the parent company offered a buy out at time of partnership).

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).


Even $10 billion feels too high. I wonder what they were thinking when they filed the S-1. That after reading that document, we'd all be inspired by the vision and clearly see the ~$40 billion valuation, and see opportunity for growth on top of that, such that the public would want to invest as it grew beyond 40? The trust in this company and its leadership is gone, and it will be difficult to correct. Perhaps the quarterly announcements will save them in a year, if it's shown to be a profitable business.


I read "as low as" as "Crazy high amount of".

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.


Retail tactics for retail investors


Regus, which I recall correctly is valued at around 4.5b USD, so WeWork should be less than that, but not proportionally so, given their much better branding.


I'm more skeptical of WeWork's culture and valuation than most, but I will give them credit for creating the best quality product in the market. When I need conference or office space in various cities I don't compare WeWork to Regus, I just find the nearest WeWork space and book there. Our portfolio companies do the same. For people who travel often, there is a subtle network effect that provides value. Regus is irrelevant in this sense, and irrelevance can be particularly deadly for valuation. Perhaps Regus can re-invest into their brand to become competitive - and I hope they do, because more competition would be healthy.


WeWork could have a substantially different portfolio of real estate assets. I think looking at Regus isn't a bad idea, but then consider it in the context of what WeWork has (though, I am not privy to knowing how many, if any, of WeWork's real estate assets are "paid off").


Most of them are rented not owned by weworks. WeWorks is in the business of subleasing.


Many of them are owned by Adam Neumann, who then leases it back out to WeWork.


By many you mean 4 [0] out of 833 [1]. I agree that the fact the number is not 0 by now is somewhat unsavory, but at this point with all of wework expansion it's basically a rounding error (those 4 locations were among the first for weworks).

[0] - https://www.bloomberg.com/news/articles/2019-08-14/wework-ga...

[1] - https://www.wework.com/locations


It's still a massive conflict of interest. The company lent him the money to buy those properties. Let's say in 2021, when WeWork is running out of money and needs to renegotiate its leases with landlords, is Adam going to lose money on that deal, or will WeWork magically avoiding needing to cut lease payments to him...?

Massive conflict of interest. We seems to be designed to make Adam rich as it's primary business purpose.


WeWork has virtually the same number of desks as IWG/Regus, so it’s unclear why their valuation should be lower.


regus makes money instead of burning it


We is losing 50 cents for every $1 they earn. And that scales as they gain more customers.

Hard to figure how they are going to cut expenses 30% or double the cost of renting from them...


Regus could own their buildings. We mostly does not.


>I wonder what they were thinking when they filed the S-1.

This-is-a-rickety-ship-that-won't-last-another-year-so-let's-cash-out-asap.


I get the sense that with some of these companies, the time to IPO is the peak valuation the company will ever achieve. That seems to be the name of the game today, to maximize returns for early investors. Legally, I don't know if there is an issue with that, but I see a moral one: you shouldn't be bringing a company public if you can't think it will grow further. It's a misuse of the public markets. And we can count many companies in 2019 and 2018 who's valuations peaked at IPO.


> Legally, I don't know if there is an issue with that, but I see a moral one: you shouldn't be bringing a company public if you can't think it will grow further. It's a misuse of the public markets.

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?


Well, in the case of WeWork, a current holder of WeWork stock might "undersell" it because their basis is already so low. It's a huge profit, and you get real, hard cash in exchange for the security. It's not a bad trade if you believe the public market won't believe in your business (regardless if you think it's the best thing ever), and you also want millions of dollars.


My guess is that they are going forward with the ipo because they are desperate for money and about to go under.


Don't they have to raise 3 billion at IPO to get access to 6 billion in credit? Seems like a major incentive to go for it and just annoy Softbank, especially cause one man controls the entire company.


WeWork has $6.6B in cash and doing $2.5B in revenue. If I use 10X revenue multiple, they would be fairly priced at around $31B. Now, there is risks on debt load, leases etc but still considering their yoy growth and possible uptick in real estate in 10 year cycle, I still think they would be cheap at or below $30B. People often try to kick the person who is fallen a bit but by Buffet style rules they are good investment opportunity in this environment. They are real business, making real money and have real growth.


Why are you using 10X revenue multiple on a real estate company?

Other RE companies are valued at 4X.[1] 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.

[1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/...


You’d seriously invest in it at a 30B valuation?


I wonder what SoftBank thinks investing so much money in this. Sunk cost dilemma? Throwing too much good money after bad? No idea what to do with all the Saudi bullions? Makes one wonder.


Wow! How did they come up with this valuation? I assumed the bankers that were part of this deal would have based their valuation on something solid. But this is an 80% discount in a span of 6 weeks. Something is seriously not right with this company. It seems like its build on a house of cards.


Quote from Matt Levine:

https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig...

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]


> 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.


> But this is an 80% discount in a span of 6 weeks

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.


This, also called price anchoring.

https://en.wikipedia.org/wiki/Anchoring


WeWork's valuation so far has been decided by a single company - Softbank. The $50 billion number was always pulled out of thin air, and they are now hitting reality.


I wouldn’t look too deep into it. Private valuations are mostly meaningless. This goes for everyone.


“As low as” Isn’t it still tons higher than a fair market evaluation compared to other rental companies? I mean I get that they “own the word We” and branded themselves a tech company. But when you strip away those jokes, they are just a b2b rental company that’s bleeding money month after month.

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.


I wonder how history will look back on Reid Hoffman's book, "Blitzscaling". The premise seems bit ridiculous now in light of recent problems at WeWork and Uber.


It's always a good idea to be skeptical of someone making claims you need lots of capital to rapidly scale your business when that person is selling capital for a living.


You do need lots of capital to scale rapidly (I don't sell capital for a living).

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 don't disagree. You also need medicine when you're sick, but you go to a doctor and not a pharmaceutical salesman to get an independent opinion.


Lol. Ok, point well made :)


I'd make the follow small modification to the parent's quote:

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.


well we're all sitting around here talking about WeWork and not the other million co-working spaces... so in way their plan worked.


I only hear about wework hear, via the media. If this was a penny stock, we'd call it a pump and dump scam.

I know tech people all over the US and Europe and literally no one has ever spoken the word 'wework' outloud to me.


I mean Uber could have still executed the same playbook and fired executives who were guilty of sexual harassment, and WeWork could have executed the same playbook but without the personal appropriation of corporate opportunity.


Even if the execs stopped running around grabbing the secretary's butts and double dealing on sketchy real-estate deals with the company that wouldn't make their business models any better.

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.


they're not profitable and never will be


Uber is THE taxi company and WeWork is THE co-working company. All over the US, and even outside of that.

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.


Consumers are playing Lyft and Uber off of each other and picking whichever one is cheaper (https://www.vox.com/2019/2/5/18210376/uber-lyft-ride-loyalty...), and Uber's network structure doesn't lend itself to geographic control (https://hbr.org/2019/01/why-some-platforms-thrive-and-others...)


I haven't read the book, but WeWork doesn't seem to fit the principles of Blitzscaling. They haven't been able to dominate their market (office space) in the same way that Google owns search or Airbnb owns home rentals. A quick search for "Reid Hoffman WeWork" returns no relevant results other than him investing in a possible competitor:

https://media.thinknum.com/articles/how-liquidspace-is-under...


> They haven't been able to dominate their market (office space) in the same way that Google owns search or Airbnb owns home rentals.

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.


Airbnb owns the peer to peer market rental. WeWork isn’t even close to the size of regus. Airbnb can expand by dropping money into marketing. We work needs to do huge outlays to buy/lease buildings and also drop money into marketing to grow.


> WeWork isn’t even close to the size of Regus.

They both manage ~45 million sq feet of office space. Regus isn't chasing tech IPO valuations as they went public in 2000.


They live by the policies, getting giant investments for a warchest and blowing it on possibly impossible to monetize locations with the hope that they will kill any competitor before one can take root. See how Uber subsidised new drivers and riders.


I haven't read the book but I struggle to take anyone behind LinkedIn particularly seriously... as someone who uses their recruiter product heavily, I'm not sure you could have designed a worse product from a functionality point of view.


Uber and WeWork are still major success stories.


Let's revisit this in 10 years


I think a big perception issue in the general public that the money people are chafing against after doing their homework is that WeWork isn’t a tech company.

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.


It's true there's a non-zero chance the property market implodes, but the shift to remote workers is exactly what WeWork is counting on. Many (even most) people chafe at working in their living space 100% of the time, and squatting in coffee shops and the like also has its limits. People generally need a work place that is separate from their living place, even if their work place is not the same work place as the rest of their company. Throw in the need for quiet places, conference rooms, whiteboards, etc, and before you know it...


This an an extremely unsexy long-term market that provides very solid returns in exchange for lots of work. That is why management companies have very low valuation even compared to REITs. It is a market where you hire Jamel and Jose who have been building supers for twenty years and who know what's on sale today in the Home Depo and what kind of light bulbs should be hoarded rather than Jack who will order stuff on Amazon because Jack will overpay by 220% by buying that stuff for just-in-time on Amazon and over a period of 10 years those mistakes are going to be a $100k difference in opex per location.

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.


Is there any evidence from their S-1 or other publications, that this is actually their strategy? Or is this a narrative retrofitted on the message boards?


This is getting comical. They keep intentionally leaking lower and lower numbers trying to gauge any level of interest.

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.


The Unicorns wander out of the enchanted forest, and turn out to be just horses with a stick stuck to their head.

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.


A couple of bad companies don't characterize an entire market.

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.


I'm not saying they're bad companies, just that they've been blown up to mythical proportions, Unicorns don't exist, their tears won't cure all ailments, they don't fart rainbows, and Wework is probably more reasonably valued as a property company, not a tech company.

Facebook fell after it's IPO by quite a lot btw.


Is anyone informed about the consequences of such a down-round? I haven't kept an eye on their incoming investments, but you'd think there might be some unhappy investors there with various clauses in their terms?

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.


I've been trying understand this too. If you have a liquidation preference on your preferred shares that says you get your money out before others, does that just go away in an IPO? If it applies, how? Because it's not like there's a buyer who is putting up the entire market cap in cash.

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?)


Lots of people rambling their opinions here, but agree with this thread that having some actual information on what the consequences of such a down round would be, given the liquidity preference in their venture rounds.

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?



>including the CEO

Didn't the CEO/founder liquidate like $700 million during a previous round meaning he doesn't care?


Imagine all the people who exercised options...


As WeWork has raised $12.8 billion [1], that would be quite a devastating repricing. I would think they would just remain private at that price, but maybe they need the cash and no private investors will give it to them.

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


I think they have $6bn in loans lined up contingent on selling $3bn worth of shares.

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.


This feels like death by IPO. They’ve signaled that both the public and private market aren’t interested. Now they have to choose to stay private and keep control, or go public and raise 80% less than initially planned, while giving away control. The best move (in hindsight) would have been not to try to IPO.

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).


This is much different from $47 billion. They know that we've caught on to the sham, and now the investors just want liquidity so they can dump this mess onto others. They're hoping some will see this as a bargain so they can still get an exit.

Don't trust this.


WeWork has close to 300K members and they've been growing massively. I'm not sure how much they charge on average but lets assume it is at least around 300 dollars per month; probably more.

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.


Just to get a sense of IPO pricing incentives:

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?


The devil is in the details (who is selling shares, lock-up period, etc) and in how the stock does over the next few years, but...

-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!


The underwriters are incentivized to price an IPO fairly accurately, yeah, because they’re playing a repeated game. If they price it too high they’ll have trouble selling new stock to investors in the future; too low and they’ll have trouble drumming up new business from private companies that want to raise capital in the public markets.

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).


I recommend reading Matt Levine "Money Stuff" he talks a lot about this kind of stuff. There is a lot of we work IPO in that newsletter.


Insiders cashing out is more important than anything apparently


Insiders can't cash out until after the lock up period, after which the price should have stabilized to whatever the market think it's worth, right? (So the IPO price isn't as important as the price the market settled on a few months later, by that logic)

Or is that thinking too simplistic?


Unfortunately, yes.

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.


In the We Co. case at least, selling the stock at a $10B valuation won’t do SoftBank much good when they’ve plowed $9B into the company.

It’ll be interesting if they indeed have taken out these loans against We stock. And especially how much.


Executives often “contribute” stock to IPOs. Their share classes effectively don’t have a lockout. Tech equity is a feudal system.


Early investors are not necessarily subject to lockouts


Socialize the losses, quick!


Its a market, the IPO is always priced accurately in as far as buyers match sellers.

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.


I think WeWork is still a bit ahead of its time. Some see its value as culture, others see it as real estate. The ways we live and work are changing, but changing any culture takes time. I still feel that We Work is creating the future, but that value is still based on change that's inherently slower than we'd like.


So forced summer camp, vegan diets, nepotism and all the other weird stuff they put their employees through is just them being ahead of the times?


> Some see its value as culture, others see it as real estate.

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?


According to their S-1 [1]

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.

[1] https://www.sec.gov/Archives/edgar/data/1533523/000119312519...


That sounds more like a continuation of the trend toward turning prospectuses into marketing materials. "Looking" and "believing" don't translate into concrete action. All this is marketing-speak, and I don't think any of it contributes real value.


You might very well think that, and it sounds like you won't be investing. But presumably people who believe "culture" is what makes WeWork a good investment are used to investing in intangible things.


Don't go confusing the kool-aid drinking employees of WeWork with the people investing in WeWork. The 80% haircut on the IPO pricing (to date) is the institutional investor's saying "no thanks" to exactly that type of feel-good BS being spouted in the S1.


Maybe I'd understand better if some one could define what this mythical "culture" is. The closest any one has gotten is copy-pasting marketing stuff from a prospectus.


SEC needs to seriously clamp down on S1 report content.


"Our mission is to elevate the world's consciousness."

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.


Have you tried working in a "coworking space"? Because its just as shitty and distracting as "open offices".


Could you provide more details? Has the culture been dictated and led primarily by its CEO? I assume that culture is guided by behavior mainly from the top down.

What is the future you see?


So they can claim to overshoot their target? The investors will be very pleased.

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


This is basically a Dutch auction as IPO at this point.


https://en.wikipedia.org/wiki/OpenIPO "OpenIPO is a modified Dutch auction" "number of companies public including Morningstar, Interactive Brokers Group, Overstock.com, Ravenswood Winery, Clean Energy Fuels, Boston Beer Company"

WeWork is experiencing this type of auction but strangely in the media instead of in communications between actual investors


I know this has been covered before, but WeWork isn't really a tech company. They're a real estate company. They buy buildings and then rent space. And they certainly don't scale the same way tech companies do.


They rent buildings (long term leases) and then rent out spaces (short term leases).

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.


At their core they are probably not a “tech” company in the traditional sense (a SaaS business). However, I think you are misunderstanding what they mean by tech company. WeWork is more akin to Flexport. Their bet is that they can run their business 10x better than their competitors by vertically integrating their tech and investing heavily in sensors and efficiency technology. They don’t really intended to sell tech to people, they intend to use tech to bleed the most money they can out of their core business, short term leases.


I am not sure I buy this. Sensors are great and everything, but the electricity for the LED lighting is not what makes buying or renting buildings in major cities expensive.


Similarly to AirBnB and Uber. Same kind of thing - use technology create a company of larger scale and coordination than previously existed in a space.

I think the general WeWork idea is great. Investing in it is another story.


I have never seen WeWork compared to Flexport before. You don't consider Flexport to be a tech company?


So what you're saying is that they are not currently a tech company but that they intend to become one?


They are in a unique position that they aren’t actually locked into their long term leases but once they start breaking them they won’t be able to get more leases on those terms so it’s in their best interest to get as many as possible then use the option to wipe away the bad ones


>aren't actually locked into their long term leases

Can you elaborate on this?


I’m on mobile so I can’t find the article but basically each lease is held by a barely capitalized independent entity. If WeWork wanted to close down a specific site they could merely shut down that specific entity without incurring obligations/fines/penalties to the entity of WeWork. Normal these sorts of things aren’t allowed and building owners won’t sign up for that but somehow WeWork was able to bamboozle a bunch of developers into agreeing to that.


I think that's why the parent put "tech" in quotes.


I guess I was referring to the quote that was posted, which certainly seemed to lump WeWork in with tech IPO's.


Well, although many now understand WeWork isn’t a tech company (and some of us were saying this YEARS ago — I personally said this at least twice on CNBC as far back as 2014), WeWork raised money and did it’s IPO roadshow and achieved the valuation it has achieved by positioning itself as a tech company, even tho it is just a real estate company with slightly complicated owning/leasing structures.

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.


investors don't really care what "tech" truly means in the classical sense (using/selling computers or apps as a central part of the business). investors care about what kind of return they can expect from a certain class of company. "Tech" has come to mean a company with high revenue/user growth, low marginal cost of production, big moats, not necessarily profitable, but on track to IPO and with large institutional/public demand for investment.

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.


They are Regus, but with cucumber water


They don't buy them, I believe they lease them


It's more complicated than that... They also have a different arm that buys the buildings.

https://www.wsj.com/articles/wework-the-workspace-giant-want...


Fair enough, my mistake. I wouldn't say that fundamentally changes their business model though.


But it does. A lease is somewhere between a capital expenditure and a normal expense. It's not a tangible asset like a building is so it can't be factored into the book value and are instead ongoing liabilities. In WeWork's case, these are multi year leases that cost almost as much to get out of as to pay outright.



Google is advertising. Facebook/Twitter/etc are social networking. Uber is transportation. Amazon sells stuff. Silicon Valley lost its tech when it lost its silicon.

You are not a tech company unless you sell technology to other companies, and that is your main stream of revenue.


I’d wager they’re tech companies if their business model is built on proprietary technology that allows them to take a business idea and scale it quickly.

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.


"Tech" is a label which can obviously mean anything as broad was "builds skyscrapers" but in this context means companies with very low marginal costs. That is specifically what WeWork is not, as every new customer requires the acquisition of physical office space.


Google's value would take a huge hit if somebody made a search engine that is better than Google's, so it's still a tech company. It's still mainly seaech (advertising is its business model, though ad positioning is state-of-the-art).

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.


Uber doesn't use Ü in its name


Google search, maps, and other products are impressive piecies of new technology that Google creates, and even if they don't sell them directly for money, they wouldn't be making their ad revenue without them.

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.


> They're a real estate company.

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.


This concern is overblown, there are very few buildings with which this happeened. (This doesn't mean the company is viable at all on the long run.)


This trope is going to die soon (as its discussed on twitter and HN like weekly now).

"Tech company" is an operating model, not an industry/market. "We" is a real estate leasing/operating company heavily enabled by tech.


The distinguishing feature of a tech company is a marginal cost of servicing an additional customer approaching 0. Spending insane amounts of money carelessly and calling yourself a tech company doesn't make you one.


There has to be a better definition than this, that's true for any company with great economy of scale.


Im a big fan of this article defining what is and isnt a tech company: https://stratechery.com/2019/what-is-a-tech-company/


There's a sibling post to mine that has a link to a blog post elucidating on what a tech company is. They go further than just 0 marginal cost. But that's the biggest one, and why tech companies justify such a big PE ratio.


The fact that there is no generally agreed upon definition tells you everything about its definition.


Is that true of Apple? I guess it might be if we’re tracking dollars per use-minute.

It is probably true of Xiaomi.


That might be a software company without customer service.


It’s really not. The distinguishing feature of “tech company” in this context is extremely low marginal cost, often coupled with network and lock-in effects that create increasing returns to scale


Genuinely don't know here, what are they doing that is enabled by tech that other companies like Regus isn't?


Or any hotel chain? They have big IT operations from online booking to managing staff and properties etc.


I would agree with the "enabled by tech" part for companies like Uber, but not at all for WeWork. There's no special tech they have that every other company in their space hasn't already for years.

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.


Once "having a website" and "idiosyncratic company culture" makes you a tech company, you know the term has jumped the shark. Some of this is starting to feel a little bit like 1999 again.



That's a pretty limiting article starting off with the premise that tech companies are companies that produce goods with a marginal cost approaching zero and then illustrating that with those companies for which this is true. But there are plenty of tech companies who were not IBM (Xerox, HP, Tektronix etc) who did just fine while still having quite a bit of cost on their purchasing side and enjoying substantial returns on their investments.

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.


It’s still a better definition than “everyone who does accounting on a computer is a digital company”.

I don’t believe WeWork is a tech company by any stretch of imagination.


This is just off the top of the head spitballing, but what about this as a definition: A tech company is a company who could not continue their business in largely the same fashion if computers did not exist.

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.


I really like your definition, I think it is much closer to where it should be.


Thank you, that’s a very good definition.


Thanks I was trying to remember who posted this. Very thoughtful and informative.


I wonder how WeWork uses technology to enable them. I'd imagine it'd be along the lines of using AI or ML to identify properties that would be profitable to sublease.


Cutting-edge ML and PhD data scientists aren’t essential elements of being a tech company. A traditional business with a mobile app in front of it is solving a problem with technology; it’s just not solving sexy HN problems.

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.


Yes, they do have a team that uses "AI" and/or "ML" to identify properties. How effective that team has been or the extent to which that team's existence makes them a tech company are entirely different questions.


I'm in real estate analytics and know that at least for my area, they used a real estate broker to find properties like anyone else would. Brokers know f-all about AI/ML/analytics (I tried to sell it to them for years all over the country and never got through to them. My fault or theirs, who knows.).

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.


Probably something like the Whole Foods algorithm. Find a wealthy area that fits your target demographics.


That sounds like a very simple algorithm. Get census data, sort by zip code median income, and filter results to above a minimum dollar amount. Doesn't make it any less of an algorithm.


It's bits vs atoms. Anyone who has run a company of both types feels the difference instantly and intuitively.


I can't believe we might lose the free beer on tap after this, it's an outrage.


Still too much for what it is. Shady real estate play with a shady CEO. Why are we even pretending this is tech?


To me, WeWork seems like one of those businesses whose success might be based on a novel but easily-duplicated idea.

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?


So why does everyone so interested in WeWork's IPO evaluation? Non trying to be sassy just genuinely curious why articles like seems are so regularly posted.


To some extent Uber is like watching a Unicorn car accident, you can't look away.

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.


Wile E. Coyote has run off the edge of the cliff and yet his legs are still going and he isn't falling. But at some point he will stop, look down, look at the camera, and then fall a long, long way.

We're just waiting for the look down.


WeWork is used by many startups and remote developers, and HN has plenty of those.

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.


the same reason we obsess over cloudflare but ignore akamai and fastly. or obsess over tesla and ignore BYD. wework is familiar and accessible to people here.


if $10B is real, that might be the end of Vision Fund II.


Add in Brandless, Wag, and Doordash and a couple others... hard to see how giving Nuro $1b for self-driving delivery robots will return 40% annualized.

Can anybody point to significant investments ($1b+) in their portfolio that will return 5x-10x?


Sometimes i wonder if the whole Vision Fund is actually a CIA plot to bankrupt certain Middle East oil states.


And now Softbank is going to buy at least 25% of the shares issued in the IPO. Either they're true believers in the valuation (i.e., that $10-15B is a steal) or this is a last ditch attempt to salvage the IPO.


With all the bad karma / news out there at this point, what are the odds that they can get any significant money publicly ... and maybe privately now that so much dirty laundry is out there?


They were previously hoping to raise $10B from the IPO, how much are they hoping to raise now?


One economic downturn and WeWork is history.

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


if it goes public, short it!


Um... is Masayoshi Son reeling now that Softbank invested at a ~40B valuation?


What should really be the shocking thing is that somehow, 10 billion is considered "low".

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".


> 10 B$

> low


I know the feeling around WeWork's IPO is to poo all over it, but let's take a step back and remember that all valuations at this point at just reports. It was reported that WeWork was going after 20B-30B, now it's reported they're going after 10B. When articles cite "sources" I'm pretty skeptical. Like all other IPOs, the bankers are going to price the stock based on what they think the market will buy. There's always intangibles that are difficult to evaluate, and maybe WeWork's IPO has more of those intangibles than usual, but I don't think we're outside of the realm of normalcy. Well, maybe we are in a massive tech bubble. I guess time will tell.


Those reports are used to gauge the public opinion. You "leak" that the valuation is going to be $XYZ and then watch the public comments, news reports et al to estimate how willing will the public be to buy in at this price.


Do you do a follow-up Twitter sentiment analysis, or do you really only care about the banker's commentary? Anyone on here, or CNBC, or Cramer's show is just the peanut gallery. We aren't the market makers.


The “reports” are just the bankers putting out offers essentially, and seeing how the (investing) public reacts. So on the one hand, they’re extremely real because they’re from the people who will eventually set the price, but on the other hand they’re extremely fake since not necessarily anyone has expressed an interest to transact at that price.


If there are more intangibles than tangibles, there is more unknown than known, and it should be priced accordingly (e.g., lower).


You're probably right, which appears to be what's happening. In the end I think the market will decide what's low enough. I'm very curious to see what happens to the stock if/when it starts trading.


Given all the negative public sentiment, my guess is the will work extra hard to get price discovery just right so it won't much at all on IPO day. As we're seeing, that likely means a significant decrease from We's most recent valuation.


They recently raised funding at $47 billion though. So it's more than "just a report".


Yes, Softbank invested at that valuation. That's their problem, really as that's a crazy valuation.

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.


It may be a crazy valuation but it's legitimate, someone paid money at that valuation.

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.


One investor paid that price. That's the issue with illiquid assets that suddenly become liquid: What one person is willing to pay may not represent the market consensus.

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.


If I go to the stock exchange and buy one share of a company at double the going rate, then until another exchange occurs my price is the going price, and the 'value' of the company as doubled.

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.


Why do you think your share determines the price of all the other shares? Is it special somehow? If nobody traded at all for a year, would that mean the company is worth zero, or that its worth is undefined?


I have shares I havent traded in a while, if I go on to my account I will be shown the latest price along with a profit or loss. That latest price is based on what the last person actually paid, that's the only thing that makes it special. But don't forget that theres 2 sides to the market, it's the last price someone agreed to sell at, because that's what we are talking about, the crossover where buyers match sellers.

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.


"Having someone actually pay money for something really is the acid test."

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.


There are economies of scale, and various other things that need teasing out here though.

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.

Ps Softbank have bought a hell of a lot more than 0.00001%, I believe they've invested about $8 billion overall.


Valuations based on investments that have liquidation preference are meaningless. It's analogous to me offering to give you $100K to own 1% of your house, but only if am also guaranteed the first $200K out of any sale. In some sense perhaps I just valued your house at $10 million, but in my perspective I just bought in at half-off the actual market value. I can still lose money if the house sells for less than $100K, but I could still be perfectly happy with my investment even if it sold for a 1/50 of the "valuation".


Right, but that liquidation preference would be junior to all other liquidation preferences, and they've already raised over $12bn, its also junior to debt, and they were seeking to raise $6bn as part of this floatation, plus whatever other debt they have. So quite clearly given that liquidation preference is now potentially worthless, they do need to base their valuation on some kind of reality.




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