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If the tech bubble and real estate bubble had a baby, it's name would be WeWork. How is a company that had a net loss of $933 million and that owes $18 billion

• code4tee 8y ago
  When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants then the whole thing looks even crazier. VC money paying revenue of a startup that uses that revenue to justify raising more money from VCs. I have some bridges to sell.
  • nicodjimenez 8y ago
    While this is true, there's plenty of non VC backed companies, consultancies, and startups at WeWork. I never liked the place myself, but it does provide value. A lot of money out there is dumb money, and a lot of it is smart money, and there's nothing wrong with having some percentage of your revenue be dumb money. AWS certainly does but nobody would question the sound fundamentals of AWS as a business. WeWork has a better balance in that regard than many others.
  • aventrix 8y ago
    "When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants" Is that a known fact or just a guess? The prices are low enough that it seems like it could easily appeal to bootstrapped companies or small businesses.
    • jordan_litko 8y ago
      Anecdotally,we're a bootstrapped business and a happy wework tenant.
  • DenisM 8y ago
    That's how mainstream internet got started - dotcom-era Yahoo was getting paid the ad dollars from startups spending money to buy growth, that very money they have raised on the promise of being the next Yahoo which is making a killing! (on the ad dollars...)
  • baybal2 8y ago
    >When you consider that much of WeWork’s revenue is likey just VC dollars paying the expenses of their tenants then the whole thing looks even crazier. VC money paying revenue of a startup that uses that revenue to justify raising more money from VCs. I have some bridges to sell. A definition of a pyramid scheme
• qaq 8y ago
  One thing that is getting lost in the noise they have like a 40% profit margin and many new properties are profit share with the developer/owner of the property. They are spending very aggressively on expansion but unlike Uber they actually have decent margins.
  • bobx11 8y ago
    40% margin on real estate seems so high. Would you mind sharing your source?
    • qaq 8y ago
      https://www.youtube.com/watch?v=-EKOV71m-PY https://www.youtube.com/watch?v=-EKOV71m-PY (after reading through the comments decided to learn a bit more and found this interview).
  • baybal2 8y ago
    It is a very, very generic coworking arrangement. Get A grade space, add services, sublet, rinse, repeat. The coworking industry, a novelty in US, was alive and kicking everywhere else before becoming a hipster trend in US. I'd say, WeWork, with all its colossality, is still only managed to secure single digits of the market share. In the future, it has no chances to approach even, say, 10% as competition is cut throat.
    • murukesh_s 8y ago
      I think that may be one attraction. With relative ease to raise funds in US, they can gobble up other global competitors , especially if the competition is cut throat (so very slim profit margins). They can easily become the dominant player if they can keep raising funds and acquire competitors in few more rounds.
      • baybal2 8y ago
        One moment here. What if you competitor will not sell itself? The "grand scheme" fails
• shimms 8y ago
  I find this whole “owe $18b in rent” thing that’s come up recently interesting. They only "owe" $18b in rent the same way any company leasing office space "owes" their landlord money. The word "owe" is thrown around here in relation (almost exclusively to WeWork) to imply they're in arrears to the landlords to the sum of sum of $18b. It isn't anything like that - they have leases over the next 10-15 years with a contract value of $18b. Over the length of their leases they have an $18b obligation, but that isn't the same as the way "they owe 18b" is used colloquially to mean currently in arrears/default. It is the same as entering into any agreement - over the agreements length you have an obligation, which if you can't service you're insolvent. I guess I find the narrative that they "owe" $18b to imply a far greater extent of distress than the reality of their leasing obligations actually entail.
  • mlthoughts2018 8y ago
    But it does impact your appraisal of their net present value, since you know their future income streams have to exceed at least that obligation plus other operating costs. I think it’s fair for their rent obligation to contribute to the concern about their business in this sense. Yes, it’s not like an immediate obligation of $18 billion. But the effect on a net present value calculation of a company already operating on big losses is still very important.
    • shimms 8y ago
      Agreed - just haven't seen future cashflow obligations referred to as "owe" in the same way, except for when discussing WeWork, so (to me) comes across disingenuous given the lack of consistency in application.
      • freehunter 8y ago
        You only hear it on businesses that have substantial future cashflow obligations, which most startups don't. That's levied against anything with capital. I've heard it used against scooter and bike rental companies, I've heard it used any time a company has its own datacenter instead of AWS, etc. Of course Uber and Basecamp and Reddit and Dropbox and other unicorns don't have this kind of criticism, because they don't have the same amount of heavy plant capital that WeWork has. Look at any thread about a company building/buying a datacenter and you'll see the same argument. It's a bad idea because if they shrink in the future they're stuck with capital they can't pay for and now they go out of business. Only in this case, they can't shrink any more because they're already massively unprofitable, PLUS they have ungodly amounts of debt obligations.
• noahmbarr 8y ago
  IMHO, the real innovation here is 3 fold: - A fresh presentation on small suite / desk rental + some trendy common area space (vs legacy players like Regus which had gotten very tired) - Having space that's largely built out. Companies can spend $50 - $100+/ft getting space ready for their use - Bridging the mismatched term expectation between landlords (desiring 5-10 year terms) and smaller tenants (desiring 0-3 year terms).
  • mlthoughts2018 8y ago
    These all seem like extremely low-hanging fruit for a building management company to do itself. What frictions do you think gives WeWork essentially what you describe as a lease arbitrage opportunity?
    • noahmbarr 8y ago
      Short term, direct leases scare thee crap out of institutional landlords. It impacts the surety of the building's income stream, which is reflected in the assets' "cap rate" and therefore valuation. Also, due to protracted lease negotiations and brokerage model (both tenant and landlord brokers get paid based on the total lease payments), there isn't motivation for shorter term leases. Just ask anyone who has a small lease requirement that is in a stable, non-VC backed company -- no tenant rep broker wants to take this work on because there is no money in that transaction, there's not that much less work than required vs a larger lease requirement, and no promise of a bigger deal with that company down the road in case they become the next Dropbox.... So 3 out of the 4 involved parties are not motivated to shorten lease term. The only one who wants shorter leases are the tenant.
      • DenisM 8y ago
        So what's to stop a local real-estate investor, or twenty investors, from leasing ten office buildings in downtown Seattle long term and then subletting them short term? Where is the WeWork moat? Buildout? Reception clerk? Meeting room reservation software? Demand forecast? At some point the VCs will stop pouring money into it, WeWork will have to charge the full price, and then any old group of people with money can build a local WeWork clone. And unlike WeWork they won't be saddled with expectations of paying a return on the multi-billion investment spent on subsidies.
• adventured 8y ago
  The net loss is meaningless currently. You're quoting the $933 million as though it matters: it does not. That's a sub 3% dilution on their valuation. Laughable with the capital that is freely flowing right now. It only matters if the music stops at a time when their finances are in very bad shape. If you had polled HN about that, you would have gotten four years ago as the popular answer to when the music was going to stop. Amazon took the exact same risk, bleeding vast red ink to expand aggressively, financing itself with free flowing capital during a bubble. So is this comparable to 1996, 1998, 2000, 2005, 2007, none of those? Who knows, especially given the behavior of central banks is aggressively interventionalist post 2007.
  • john_moscow 8y ago
    So many people like referring to Amazon and Facebook, although they forget that both companies capitalized on the rapidly raising demand for better shopping and better casual networking triggered by the rise of web. There were actual people willing to pay for a solution and there was nobody else providing a good enough solution because the technology was relatively new. What recent technological advance made WeWork possible in a way that was not viable 10 years ago? Cash burning VCs' pockets that lets them underbid the competition?
• macawfish 8y ago
  You're missing what WeWork actually does. They're in the data business. So is SoftBank, their primary investor. WeWork tracks everything that goes on in its buildings. They're in the business of understanding the quantifiable nuances of human interactions within a workspace. WeWork itself uses that data to "optimize" the coworking experience, but from what I understand, SoftBank has much grander schemes. http://www.businessinsider.com/weworks-secret-weapon-will-be-data-2016-5 http://www.businessinsider.com/weworks-secret-weapon-will-be... Oh wow look what else SoftBank owns: https://en.wikipedia.org/wiki/Boston_Dynamics https://en.wikipedia.org/wiki/Boston_Dynamics Soon there will be robots walking around the WeWork offices delivering coffee and monitoring peoples breathing patterns.
  • aorloff 8y ago
    The actual data business is pretty thin margins. So unless WeWork can use that data to be a better real estate company, it doesn't much matter. And I have a hard time believing that WeWork needs all that data to create their coworking spaces these days, especially since lots of competitors come real close without the data.
    • macawfish 8y ago
      I think there's a bigger picture here. I'm not suggesting that selling the data is lucrative. From what I've heard, WeWork and SoftBank have plans for the data that goes far beyond coworking spaces or data brokerage. I'm thinking of it as a lab for quantitatively studying human behavior in a candid setting. When you go into a WeWork space, you're a specimen.
      • momentmaker 8y ago
        Like Westworld. Heh.
    • josephjrobison 8y ago
      They would have a ton of data points on how all the "free beer" runs out constantly, as well as the "free cold brew coffee". They'd get data on how they don't have enough bathrooms for their capacity, there are often broken items in these bathrooms, and more. They'd have data on how there's never enough mugs and how they're at <60% capacity in one building, yet opening up 2 more in a city :).
• realaz8282 8y ago
  It’s almost as if tales of economics and physics being one and the same are nonsense The Bible’s very existence and religion are evidence human society can be built around ephemeral ideas with no literal basis in reality We’re not beholden to formulas Hundreds of years ago the formulas said the world was flat Physics and the standard model make sense from numerous mathematical interpretations Which one is “right”? Whichever the one people talk about most
• paidleaf 8y ago
  > How is a company that had a net loss of $933 million and that owes $18 billion in rent even remotely worth $35 billion. Theranos had a valuation of $9 billion not too long ago. Did we forget about Pets.com and all the "valuable" properties during the dotcom boom that became worthless in a manner of months? Or the shacks worth hundreds of thousands during the 2000 housing bubble? > I'd consider the lemonade stand on the corner to be more of a business than WeWork in the true sense of the word. You should. There is so much money out there looking for assets that you could start a lemonade franchise business and you are sure to get investors bidding up your property even if it makes no money. The current economic environment is dotcom bubble + housing bubble combined on steroids. There is lots of money to be made if you are willing to suppress your morals and just take the money.