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WeWork IPO Shows It's the Most Magical Unicorn

212 points by jpm_sd 7y ago

not_a_cop75 7y ago
Magical = Most incredible potential for failure
frostyj 7y ago
Market will teach these companies a lesson
- wavefunction 7y ago
  Companies don't possess a capacity to learn, being just a legal fiction and not actual people.
  - danaur 7y ago
    It's also a fiction that these companies learn and is just as real as the legal fiction.
  - Barrin92 7y ago
    institutions are just as capable of learning than anything else as long as they consist of bodies that are capable of reform and memory (my home country Germany can tell a lesson about it), and anyhow the idea of an 'actual person' as somehow continuous entity is a fiction too. Individuals pass through just as many disruptive phases as any other entity. A person at the age of 5 and at the age of 50 is only 'the same' in a legal sense.
    - marmaduke 7y ago
      Iso9001 being a prominent example of RL on an organizational level.
- imbored 7y ago
  The CEO and a few investors make money. Nothing else really matters.
- munk-a 7y ago
  Yea, I'm sure all the people who built up a multi-billion dollar valuation with a chat application are really going to be hurting when it... wait, since all these companies have already cashed out will it just like shame them or something? Maybe the invisible hand of the market will wag its finger in a condescending manner. A bunch of these valuations seem pretty BS, but it's not going to hit companies, it'll hit investors that think they're going to make 1000% RoI on the next WhatsApp clone... granted the market is still rewarding them so until it comes down I don't know if we can really consider it to be too foolish.
- mLuby 7y ago
  These companies will teach the Market a lesson, more like.
- ghobs91 7y ago
  Right after their sleezeball CEO and all their VCs cash out, leaving small time investors holding the garbage at the end.
  - mikeg8 7y ago
    I’ve never understood this point of view. Shouldn’t every investor, regardless of scale, bear responsibility for their investments? If by small investors you mean regular employee 401Ks, controlled by the wealth management division of a bank, with a heavily diversified portfolio, that is still a risk the “investor” may be fine accepting. I don’t really feel bad for anyone losing money when they actively put it into a system of massive speculation.
    - themagician 7y ago
      The thing is that most people don’t know what they are doing. The 401(k) is the only retirement program we have. At the end of the day when companies go public and then go bust the money is often coming from the collective public in some way. You are right, it’s a very small detail. But it’s one of those cogs that turn while making the rich richer by extracting value from the public. The founder of this company is a billionaire. A man that runs a company which makes no money is a billionaire. Where did the money ultimately come from? Who pays the bill? He’s added no value to society by any objective measure, he’s just taken.
      - nradov 7y ago
        In most 401(k) plans the default funds don't invest in IPOs. Most workers and retail investors have no exposure here.
        matthewdgreen 7y ago
        During the last crash, most 401k investors didn't think they had much exposure to mortgage-backed securities. Turned out they had lots of exposure to companies that held those securities. I don't know how much that's also true with these IPO stocks.
paulsutter 7y ago
“In the short run, the market is a voting machine but in the long run, it is a weighing machine" -Benjamin Graham
danso 7y ago
Tangent: the article includes a chart titled "Unicorns Gored" with the caption, "Many of the highly valued young technology companies have not done well as public companies". It features 9 relatively recent tech IPOs, including Lyft, Dropbox, Spotify, and Snapchat. All of the companies have a negative delta in terms of initial stock price, from -47% to -2%, except for Pinterest, which is +77%. I actually had forgotten Pinterest IPOed, and I guess that's a reflection of how much I get my tech news from HN. Pinterest seems very underdiscussed on HN [0] relative to its market cap – $17.5B vs Lyft's $15.8B and Dropbox's $7.3B. I guess that's a function of how relatively few HNers may be Pinterest users? [0] https://hn.algolia.com/?query=pinterest&sort=byPopularity&prefix=false&page=0&dateRange=pastYear&type=story https://hn.algolia.com/?query=pinterest&sort=byPopularity&pr...
- gnulinux 7y ago
  Huh didn't even know Pinterest is still a thing. Is it like Instagram?
  - freehunter 7y ago
    Pinterest is really big in the DIY space. It's success is more easily explained hand in hand with Etsy rather than any social media.
  - iamaelephant 7y ago
    My most frequent interaction with Pinterest is excluding it from Google Image Search results.
  - munk-a 7y ago
    Every time I've interacted with it I've found it extremely obnoxious, it is very strongly oriented to capture users within it's network and actively tries to avoid letting users do anything while logged out or to get a raw image.
  - anthony_doan 7y ago
    Different-ish. There's a recommendation system that I think is pretty good and people can collect other people pictures/pins in their own collections. I don't think there is any emphasis on influencers or at least from my casual usage I don't see any. I think this is in part because people can collect other people's pins/pictures into their own collection.
imbored 7y ago
I don't know much about it, but this seems a lot like a company that is mostly just meant to make the CEO rich no matter what with a good chance to see the vast majority get screwed. Like how much money is still being funneled right into his pockets because he owns the places the company leases?
smithmayowa 7y ago
I never knew pinterest was that big, never used it in my life not even once. How many other startups and market tangents have I been ignorant to I am beginning to wonder.
brooklyntribe 7y ago
Isn't the new WeWork in the Brooklyn Navy Yard empty? They have been trying to fill it for months. But double-check me on that. 1/2 billion to build that baby.
- judge2020 7y ago
  Unless there's another one, the Dock 72 location is still "Opening Soon" https://www.wework.com/buildings/dock-72-at-the-brooklyn-navy-yard--new-york-city--NY https://www.wework.com/buildings/dock-72-at-the-brooklyn-nav...
jbarciauskas 7y ago
Zoom is also up 50% since it went public in April, and Crowdstrike is up 70%. I don't really get the sense in comparing a bunch of companies with disparate financials and very different industries. The We Company is a real estate company trying to convince people it's a tech company. This list mixes B2C and B2B companies, SaaS platforms with monthly recurring revenue with companies with advertising-based business models. Almost none of these organizations are reasonably comparable.
- buboard 7y ago
  But if they all feed from the same pool of money who are looking to invest in "tech", then they are related.
- bradleyjg 7y ago
  I would expect something described as a real estate company to be long, well, real estate. As I understand it We is short real estate.
  - jbarciauskas 7y ago
    I forgot about the shell company bit on their long-term leases. In any case, they are in the business of managing and reselling real estate, whatever the time horizon.
femto113 7y ago
Magical indeed. From the chart in the article it looks like for the most recent half-year they were paid $1.35B in rent and spent $1.23B to operate their properties, which works out to just $120MM in operating income for the year, let's say $250MM for the year. Per the S1 they already have around $4B of debt which looks like it costs them about $80MM per year in interest. That leaves about $170MM in plausible "earnings" if you assume they didn't have any other costs (they do, massive ones, but for sake of argument). The suggested IPO valuations are about 400x that amount, or about 20x higher than the average P/E of the S&P 500.
- femto113 7y ago
  Digging into those other costs is informative as well, the numbers for 2018: Pre-opening location expenses $350MM Growth and new market development expenses $475MM Sales and marketing expenses $370MM One could make some sort of argument that the first two categories are long-term investments, but the last one really stands out to me: they spent $37 on sales and marketing for every $25 they "earned".
  - danieltillett 7y ago
    But I am sure they have great parties.
  - zaroth 7y ago
    Their sales and marketing was $370m/$1350m or 27% of revenue. Is that in line with industry norms? I think it makes little sense to express Sales & Marketing expense as a percentage of Net Income... You could express it in terms of New Revenue Growth, to get a feel for customer acquisition cost, and then look at churn to get a feel for lifetime value and payback periods... if you wanted to analyze them like a "SaaS" type business.
    - femto113 7y ago
      What industry are we talking about? Most commercial real estate used for offices spends almost nothing on marketing (they put a sign in the window perhaps). I don't think SaaS is at all relevant. Typical SaaS gross margins are upwards of 60%. WeWork's gross margins are under 10%. Edit: found a source[1] that states "5% of broker’s cut is standard" for commercial real estate marketing expenses, with a broker getting about half of the commission which is around 2.5%. Even if you went with 10% of a 10% commission rate that would only be 1% of the total. [1] https://www.calicomarketing.com/commercial-real-estate-budget-marketing/budgeting-marketing-listings/ https://www.calicomarketing.com/commercial-real-estate-budge...
kolbe 7y ago
What I don't get is how small some of these numbers are. Weren't some of the figures being tossed around valuing it at $40bn? And their revenues are in the low single digit billions. It's one thing to get sucked in by a company like Uber who does $50b+ in rides, and think how valuable they could be if they figured out how to earn a meaningful chunk of that pie, but WeWork earns virtually no money, and exists in one of the oldest and most competitive businesses known to man. What is the upside that investors are envisioning?
- skewart 7y ago
  The optimistic case for WeWork is that they have a shot to become an extremely powerful player in the office real estate market. The idea is that they could get to a place where most big companies looking for office space would prefer to do it from WeWork because it's better than leasing directly from a building owner. And most building owners would prefer to lease their space to WeWork because it's better than trying to lease directly - after all, at this point everyone looking for office space is going to WeWork so it's tough to find companies who want to lease directly. Once they're in this position they'll be able to bully building owners into leasing to them at very favorable rates - who else are the owners going to lease to? The idea is that WeWork can do in real estate what cloud infrastructure-as-a-service providers like AWS and Azure are doing in computing. Most companies find it easier to build on AWS instead of running a data center directly. And data center hardware providers find they kind of have to accept the big cloud providers' terms because they don't have a lot of other people to sell to these days. In order to believe this optimistic case for WeWork you have to believe that they are providing a useful abstraction on top of leasing office space the traditional way, and you have to believe that they won't face any deadly competition. Personally, I'm skeptical of both of those, but I think the best case for WeWork providing a really useful abstraction hinges on two things: 1) a secular shift in the way people work leading to highly flexible office arrangements (e.g. instantly spin up an office in Berlin, run it for two months, then shut it down) becoming much more attractive; 2) WeWork being able to structure lease terms in ways that are better for corporate accounting somehow (i.e. it's not a better product at the end of the day, but it looks better on the books). The best case for them winning out over competition comes down to them getting such a big lead in the amount of space they offer and brand recognition that nobody can challenge them - hence the rationale for burning a ton of money quickly to open as many locations as possible as soon as possible. I'm skeptical and I'd argue WeWork is more likely to end up like MoviePass than AWS. (MoviePass had pretty much the same idea and playbook - burn money to get to scale and market power quickly then dictate terms to the suppliers who have been eating into your margins - and it didn't exactly turn out well.) But anything is possible. tl;dr Long-term investors hope that if WeWork can achieve a dominant position in the global office market then they can increase their margins by both lowering their cost to acquire space and increasing the rents they charge. If they pull that off then they can rake in hundreds of billions of dollars and be worth trillions.
qsymmachus 7y ago
WeWork's business model makes more sense when you realize it's probably just a scheme for transferring VC money directly into Adam Neumann's pocket. He owns a number of the buildings that WeWork is leasing: https://www.bizjournals.com/sanjose/news/2019/01/16/wework-ceo-neumann-property-owned-ipo.html https://www.bizjournals.com/sanjose/news/2019/01/16/wework-c...
- tomhoward 7y ago
  No longer true; he transferred them to a fund owned by the company: https://www.businessinsider.com.au/wework-ark-fund-to-buy-commerical-properties-2019-5?r=US&IR=T https://www.businessinsider.com.au/wework-ark-fund-to-buy-co...
  - throwawaytoday5 7y ago
    I don't mean to be facetious but how does that make it better? Doesn't he still control the company that owns the fund? Is it suppose to be better because it "looks" better because with my minimal understanding there isn't a difference.
    - fastball 7y ago
      I mean, it is different / better. Now, if WeWork goes belly up, Neumann doesn't get to keep the buildings.
      - elmomle 7y ago
        But he gets to keep the money that they paid him for the buildings.
    - tomhoward 7y ago
      His personal ownership was a problem as it created a conflict of interest between his personal property assets the the company, so you have scenarios where he is engaging in related party transactions [1], i.e., potentially entering into lease agreements at above-market rates, to benefit himself personally, and (as the sibling commenter pointed out), having highly valuable property assets, funded by company loans, that remain in his personal ownership even if WeWork goes out of businesses. When the company owns the properties, that ceases to be the case, as there is no conflict of interest between property owner and occupier as they are one and the same. He is (and was) still always legally obliged to act bona-fide in the interest of the company (i.e., act as much for the benefit of minority shareholders as his own). It was just harder to scrutinise when he was both the majority shareholder of the company, and landlord for some of its properties. That is no longer the case. [1] https://en.wikipedia.org/wiki/Related_party_transaction https://en.wikipedia.org/wiki/Related_party_transaction
lifeisstillgood 7y ago
The City of London is having a skyscraper boom at the moment - two major 100+ floor buildings are going up and you can hardly turn a corner without some crane or building work going on. I personally (and without any empirical evidence) think that there is no way London needs this much more office space, partly because "Brexit China Tariffs", but mostly because remote working and "just not in the office five days a week" is becoming a thing. Turning that sterile office space onto more live/work/mix-it-up space, perhaps floors 1-20 as office and 20-40 as apartments or something, will almaot certainly be a feature of the next twenty years. And all that office space and living space and mixed something or other we don't quite get, all that will need to be sold and packaged and marketed. And so, long story long, whilst WeWork may look like a joke, may be a "lose money on each sale but make it up in volume", something like WeWork may just be the Hoover or the Pullman coach of mixed live work office buildings. Because mixed live work office buildings will be the Pullman coaches of tomorrow's cities - cities have a new brighter car free future, where Barcelona's mega-blocks will meets the density of skyscrapers. But it needs ... looking after. Putting a millions tons of glass and steel pointing straight up is an awesome technical achievement Making that tower somewhere that families can live, love, shop and work is a different skill set entirely. It won't look like building service companies do today. It might just look like WeWork (Thank you, normal cynical and cutting remarks will resume shortly)
- professorTuring 7y ago
  > [...] perhaps floors 1-20 as office and 20-40 as apartments or something, will almaot certainly be a feature of the next twenty years. Please be wrong, please, please, please... If I just can telecommute I don't want my workspace being my live space and my neighbours being my coworkers. That can may be a thing if you are living by your own, living in a foreign city and without family. I can't see it other way.
  - tomatocracy 7y ago
    One thing the City as an area is short of is hotel space. Hotels or part-time occupancy residential (serviced apartments and second homes) feels much more realistic for that space than "true" residential space.
TazeTSchnitzel 7y ago
I feel like something must be seriously wrong with capitalism if it can keep creating these startups and funnelling endless hundreds of milions into them so they can accumulate debt, lose money, and achieve absolutely nothing of value.
- codeisawesome 7y ago
  I loved working at WeWork in Singapore for my remote ex-employer, and will definitely do it again with my own cash if I need to work by myself. All the other Coworking spaces (a dime a dozen in this town, I tried them all) had issues with something or the other. I think they do create something of value, and so do ridesharing companies (I love using them and hate the experience of hunting for taxis). Maybe it’s incorrect to look at just short term revenue/profit figures when deciding if these companies are creating wealth for their users...
- umanwizard 7y ago
  Even if that’s true, why should it bother you that money is being extracted from rich VCs and distributed to other rich people in the worst case, and working- and middle-class employees and customers in the best case?
  - Ididntdothis 7y ago
    Don't forget that the rich VCs are often not putting up their own money but often pension funds from your local municipality .
  - randomsearch 7y ago
    Aren’t the rich VCs cashing in on the IPOs and letting the markets take the losses? Classic bubble behaviour - pay plenty so long as someone else will pay more.
    - TazeTSchnitzel 7y ago
      Sort of like a ponzi scheme requiring a constant inflow of cash, where those who get out earlier are fine and the rest lose?
deleted 7y ago
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tomhoward 7y ago
I have a bit of knowledge of the co-working industry. I’m good friends with the founder of the first and long-dominant tech/creative co-working space in my Australian city, and I served on its advisory board in the past couple years, through what turned out to be a distressed sale of the business to its landlord, after it became insolvent and unsalvageable. There are several fundamental flaws with the concept that make it very hard for this kind of business to work: 1) Difficult/unpredictable/uncontrollable customer retention Most of your customers are individual freelancers and early-stage companies up to about 20 people. If they become successful, they outgrow the space and leave (possibly after a period of tenancy on negotiated discounted rates because “hey it would really hurt you guys if we left”). If they are unsuccessful, they go out of business and leave, possibly after a couple of months of non-payment (“oh man we’re just waiting for a big payment/financing, we’ll be able to pay next month for sure”), which is hard/impossible to recover once they’ve left. And even where people remain eligible customers, the transient nature of the customer-supplier relationship means it's easy to jump ship if a cooler space opens around the corner. So you’re running this revolving-door business, where retention is only partially within your control, and having to invest heavily on new customer acquisition (often involving free trial periods and other incentives) to keep up with churn. Your most reliable customers in terms of tenancy and payment are remote workers/teams for bigger interstate/international companies, but too many of them and the culture can become too corporate-feeling and less appealing for everyone - them included. 2) High setup costs and fixed running costs Rent, fit-out, furniture, facilities, utilities, cleaning/maintenance, staff, etc. Most of these costs are largely independent of occupancy levels/revenues. 3) Difficulty finding/keeping good staff The “community management” job in these places is highly specialised and demanding. All day you’re dealing with human problems that are exacerbated by people’s stresses about their business or job, as well as all the minutiae of things like the toilets/kitchens being clean/stocked, meeting room booking windows being adhered to, ensuring that the people in the space are all people who are meant to be there. Emergency calls from people who e.g. left their wallet in the space that day and “just need someone to let me in to grab it” (at 9.30pm) become routine occurrences once you reach a certain scale. Beyond these practicalities, the people in these roles set the mood for the whole space, and can make all the difference between it being a welcoming and happy place or a dull/miserable one. Finding people who can not only do this kind of work all day every day, but do it with an enthusiastic and friendly demeanour, is very difficult, and burnout/turnover is common. In general, the kinds of people who can do this job really well can get a less-stressful/better paid job elsewhere (quite possibly for one of your resident companies). 4) Competition/substitution The market in many cities has become saturated (partly thanks to WeWork itself). This pushes market rates down, acquisition/retention costs up, expectations up (“the other place has FOUR types of kombucha on tap”), and dilutes the pool of potential residents and staff. And after all, what you’re offering is not essential for freelancers/small companies anyway. They can easily work from home, cafes, borrowed/subleased space with other companies. It seems the only way to make these businesses financially viable is by partnering with something like a startup accelerator/investment company or an R&D body backed by industry and/or academia. But this requires deep links with local community/industry, and is a huge amount of work to establish and manage. For a player like WeWork, this kind of work is hard to do as it can’t be done with a cookie-cutter approach, and local collaborators for these kinds of partnerships often prefer to work with locally-owned businesses rather than big outsiders. So, we’ll wait and see. Maybe WeWork has something up their sleeve that will allow them to build a model that works. I’ll be interested to watch it play out.
ed_elliott_asc 7y ago
Pretty certain that paying for wework is a vanity project. You get biscuits and beer and a nice location but you don’t need any of it
codesushi42 7y ago
A bubble company, pure and true. What's new? This one is riding the wave of both the commercial real estate and tech bubbles. Brilliant.
BIKESHOPagency 7y ago
I realize I'm probably a bit of a unicorn, but I've coworked in the same co-working office for over 8 years. The businesses in the office have changed and there has been some turn over in those years but 50% of us have stayed! Those of us who have stayed the past 8 years have cycled between self employed, and employed full-time, often years at a time for one company. We live in a small town in Colorado that has never provided work opportunities in our field, but we've always been successful working remotely. Small town co-working has provided a huge value for us: no commute, we're out of the house, camaraderie, friendship and support. Maybe this is an example of a profitable co-working. I know that in these past 8 years the owner has done very little recruiting and the desks are always full.
JamesAdir 7y ago
As much as I love reading all the commenets here that try to use rational and great thoughts about WeWork, they forget one thing - this company for a very long time is a classic pump and dump. Even the founder sold stocks just a while ago. There is no business reason, unique technology or anything else that will even try get close to the numbers of this company. I just hope that when it collapses it will be contained and not affect the entire technology sector.
OkGoDoIt 7y ago
One thing I never see mentioned in any analysis of WeWork is Regus, which does more or less the same thing but with less fanfare. They’ve been running coworking spaces and short term office rentals around the world for a long time. Do the two companies have similar business models? Can we look to Regus’s long history to better analyze WeWork’s prospects? It’s not like WeWork invested co-working spaces, so I don’t understand why everyone acts like they did something novel. On a personal note, I’ve been a happy user of Regus for nearly a decade and I can’t imagine switching to WeWork. The WeWork offices I’ve been to are large open offices or glass-walled. They have better kitchenettes but not astronomically better. And the whole vibe feels very unprofessional, one step up from a coffee shop. And they cost a lot more. I don’t get it.
- bertil 7y ago
  I was genuinely surprised to read your impression of Regus. I worked at their offices twice and both times, I was surprised they were still in business. The first time I’ve heard about WeWork, I was excited precisely because I thought Regus was hogging a necessary service.
- joelhaasnoot 7y ago
  Regus is the 1990s business services company that has never heard of the internet...
- notahacker 7y ago
  WeWork has a lot of brand differentiators from Regus (free beer and networking vs quiet efficient blandness for getting stuff done. Different strokes for different folks). But yes, there's nothing remotely new about the model (Workspace Group has also been doing it for three decades in the UK) and whilst these companies are certainly profitable, their valuations are somewhat closer to the real world.
- danpalmer 7y ago
  I had a look at working in a Regus when I was on a long trip to a foreign country. The whole feeling was super stuffy. I first had to have a sales call with someone who didn't really seem to know what they were talking about, then he wanted me to come and visit, then it became apparent that he was talking about the wrong location. The space was a very boring environment with a cheap fit-out. The price wasn't great. I ended up working in a local co-working space. I walked in off the street and the owner showed me around. I said I was only there for a short period and he suggested some custom pricing. He was friendly and knew what he was talking about, the office manager was friendly and again had answers to everything I wanted to know and more. The space was interesting and felt nice to be in, while still providing a good working environment to put my head down and work in. I've never worked in a WeWork, but I've visited a bunch, and they always strike me as much closer to the latter than the former.
randomsearch 7y ago
When the recession hits (more controversially the bubble pops), I’m not sure what will happen to WeWork. I would guess it will collapse, as tenants leave and it can’t pay for its rental costs. But on the flip side, in a recession landlords become much more open to renegotiating terms, and more people freelance or start their own business when they lose their jobs. So it’s possible WeWork could somehow claw their way out of it.
- cherrypepsi 7y ago
  There's an interview to Neumann by BI where he talks about that exact same thing. Makes one wonder if they're betting it all on a recession for things to "work" (heh) The interview, soft paywall: https://www.businessinsider.com/wework-ceo-adam-neumann-business-model-softbank-ipo-risks-2019-5?r=wework-10yr https://www.businessinsider.com/wework-ceo-adam-neumann-busi... I don't like this pattern, more than VC funded startups they are more like QE funded startups, regurgitating your own devalued money as a favour. Uber comes to mind, too.
dalbasal 7y ago
Control/ownership/structure aside, the interesting line here is: "The financial disclosures make it clear that WeWork — which, it should be said, is a commerce office leasing company and not truly a tech company" Lots of tech companies (eg uber) take VC funded losses to grow at tech startup rates. This can create unsustainable business models and mask sustainability issues. But... ..But, in tech, the potential payoff driving all this investment flow is getting to a monopoly (in the Thiel sense). Out of this world business models like Google's or FB's that generate massive revenue with near-zero marginal costs. Software economics, basically. The winners win incredibly big. This makes the massive-multiple investment case rational. Tesla, WeWork and such have much more normal, non-software-like economics. WeWork will never lease office space for that much above market rates. No matter how good Tesla's cars and/or manufacturing tech gets, they are never going to sell cars at a 40% margin^. That's why Elon had to sell all the Tesla share and take loans. It takes a lot of resources to build factories and cars. Office space can be leased, so WeWork hasn't needed as much financing, but it comes out of operating margins instead. You basically cannot achieve software startup money-machine goals with atoms and marginal costs. ^Self-driving aside.
RyanAF7 7y ago
I'm sorry, who the frack is this CEO? How are these anti-savvy CEOs getting this much money in the first place? What investor looked at this kind of model and went...oh hell ya, Imma dump money into that. Massive real estate speculation you say? Shrinking capital gains you say? No downside risk of massive customer fallout or systemic risk of market downturns you say? Oh...you're saying all those things are totally possible and very likely! Well in that case just take 75% of all my money for your little scheme.

212 points by jpm_sd 7y ago

not_a_cop75 7y ago

Magical = Most incredible potential for failure

frostyj 7y ago

Market will teach these companies a lesson

wavefunction 7y ago
Companies don't possess a capacity to learn, being just a legal fiction and not actual people.
- danaur 7y ago
  It's also a fiction that these companies learn and is just as real as the legal fiction.
- Barrin92 7y ago
  institutions are just as capable of learning than anything else as long as they consist of bodies that are capable of reform and memory (my home country Germany can tell a lesson about it), and anyhow the idea of an 'actual person' as somehow continuous entity is a fiction too. Individuals pass through just as many disruptive phases as any other entity. A person at the age of 5 and at the age of 50 is only 'the same' in a legal sense.
  - marmaduke 7y ago
    Iso9001 being a prominent example of RL on an organizational level.
imbored 7y ago
The CEO and a few investors make money. Nothing else really matters.
munk-a 7y ago
Yea, I'm sure all the people who built up a multi-billion dollar valuation with a chat application are really going to be hurting when it... wait, since all these companies have already cashed out will it just like shame them or something? Maybe the invisible hand of the market will wag its finger in a condescending manner. A bunch of these valuations seem pretty BS, but it's not going to hit companies, it'll hit investors that think they're going to make 1000% RoI on the next WhatsApp clone... granted the market is still rewarding them so until it comes down I don't know if we can really consider it to be too foolish.
mLuby 7y ago
These companies will teach the Market a lesson, more like.
ghobs91 7y ago
Right after their sleezeball CEO and all their VCs cash out, leaving small time investors holding the garbage at the end.
- mikeg8 7y ago
  I’ve never understood this point of view. Shouldn’t every investor, regardless of scale, bear responsibility for their investments? If by small investors you mean regular employee 401Ks, controlled by the wealth management division of a bank, with a heavily diversified portfolio, that is still a risk the “investor” may be fine accepting. I don’t really feel bad for anyone losing money when they actively put it into a system of massive speculation.
  - themagician 7y ago
    The thing is that most people don’t know what they are doing. The 401(k) is the only retirement program we have. At the end of the day when companies go public and then go bust the money is often coming from the collective public in some way. You are right, it’s a very small detail. But it’s one of those cogs that turn while making the rich richer by extracting value from the public. The founder of this company is a billionaire. A man that runs a company which makes no money is a billionaire. Where did the money ultimately come from? Who pays the bill? He’s added no value to society by any objective measure, he’s just taken.
    - nradov 7y ago
      In most 401(k) plans the default funds don't invest in IPOs. Most workers and retail investors have no exposure here.
      - matthewdgreen 7y ago
        During the last crash, most 401k investors didn't think they had much exposure to mortgage-backed securities. Turned out they had lots of exposure to companies that held those securities. I don't know how much that's also true with these IPO stocks.

paulsutter 7y ago

“In the short run, the market is a voting machine but in the long run, it is a weighing machine" -Benjamin Graham

danso 7y ago

Tangent: the article includes a chart titled "Unicorns Gored" with the caption, "Many of the highly valued young technology companies have not done well as public companies". It features 9 relatively recent tech IPOs, including Lyft, Dropbox, Spotify, and Snapchat. All of the companies have a negative delta in terms of initial stock price, from -47% to -2%, except for Pinterest, which is +77%. I actually had forgotten Pinterest IPOed, and I guess that's a reflection of how much I get my tech news from HN. Pinterest seems very underdiscussed on HN [0] relative to its market cap – $17.5B vs Lyft's $15.8B and Dropbox's $7.3B. I guess that's a function of how relatively few HNers may be Pinterest users? [0] https://hn.algolia.com/?query=pinterest&sort=byPopularity&prefix=false&page=0&dateRange=pastYear&type=story https://hn.algolia.com/?query=pinterest&sort=byPopularity&pr...

gnulinux 7y ago
Huh didn't even know Pinterest is still a thing. Is it like Instagram?
- freehunter 7y ago
  Pinterest is really big in the DIY space. It's success is more easily explained hand in hand with Etsy rather than any social media.
- iamaelephant 7y ago
  My most frequent interaction with Pinterest is excluding it from Google Image Search results.
- munk-a 7y ago
  Every time I've interacted with it I've found it extremely obnoxious, it is very strongly oriented to capture users within it's network and actively tries to avoid letting users do anything while logged out or to get a raw image.
- anthony_doan 7y ago
  Different-ish. There's a recommendation system that I think is pretty good and people can collect other people pictures/pins in their own collections. I don't think there is any emphasis on influencers or at least from my casual usage I don't see any. I think this is in part because people can collect other people's pins/pictures into their own collection.

imbored 7y ago

I don't know much about it, but this seems a lot like a company that is mostly just meant to make the CEO rich no matter what with a good chance to see the vast majority get screwed. Like how much money is still being funneled right into his pockets because he owns the places the company leases?

smithmayowa 7y ago

I never knew pinterest was that big, never used it in my life not even once. How many other startups and market tangents have I been ignorant to I am beginning to wonder.

brooklyntribe 7y ago

Isn't the new WeWork in the Brooklyn Navy Yard empty? They have been trying to fill it for months. But double-check me on that. 1/2 billion to build that baby.

judge2020 7y ago
Unless there's another one, the Dock 72 location is still "Opening Soon" https://www.wework.com/buildings/dock-72-at-the-brooklyn-navy-yard--new-york-city--NY https://www.wework.com/buildings/dock-72-at-the-brooklyn-nav...

jbarciauskas 7y ago

Zoom is also up 50% since it went public in April, and Crowdstrike is up 70%. I don't really get the sense in comparing a bunch of companies with disparate financials and very different industries. The We Company is a real estate company trying to convince people it's a tech company. This list mixes B2C and B2B companies, SaaS platforms with monthly recurring revenue with companies with advertising-based business models. Almost none of these organizations are reasonably comparable.

buboard 7y ago
But if they all feed from the same pool of money who are looking to invest in "tech", then they are related.
bradleyjg 7y ago
I would expect something described as a real estate company to be long, well, real estate. As I understand it We is short real estate.
- jbarciauskas 7y ago
  I forgot about the shell company bit on their long-term leases. In any case, they are in the business of managing and reselling real estate, whatever the time horizon.

femto113 7y ago

Magical indeed. From the chart in the article it looks like for the most recent half-year they were paid $1.35B in rent and spent $1.23B to operate their properties, which works out to just $120MM in operating income for the year, let's say $250MM for the year. Per the S1 they already have around $4B of debt which looks like it costs them about $80MM per year in interest. That leaves about $170MM in plausible "earnings" if you assume they didn't have any other costs (they do, massive ones, but for sake of argument). The suggested IPO valuations are about 400x that amount, or about 20x higher than the average P/E of the S&P 500.

femto113 7y ago
Digging into those other costs is informative as well, the numbers for 2018: Pre-opening location expenses $350MM Growth and new market development expenses $475MM Sales and marketing expenses $370MM One could make some sort of argument that the first two categories are long-term investments, but the last one really stands out to me: they spent $37 on sales and marketing for every $25 they "earned".
- danieltillett 7y ago
  But I am sure they have great parties.
- zaroth 7y ago
  Their sales and marketing was $370m/$1350m or 27% of revenue. Is that in line with industry norms? I think it makes little sense to express Sales & Marketing expense as a percentage of Net Income... You could express it in terms of New Revenue Growth, to get a feel for customer acquisition cost, and then look at churn to get a feel for lifetime value and payback periods... if you wanted to analyze them like a "SaaS" type business.
  - femto113 7y ago
    What industry are we talking about? Most commercial real estate used for offices spends almost nothing on marketing (they put a sign in the window perhaps). I don't think SaaS is at all relevant. Typical SaaS gross margins are upwards of 60%. WeWork's gross margins are under 10%. Edit: found a source[1] that states "5% of broker’s cut is standard" for commercial real estate marketing expenses, with a broker getting about half of the commission which is around 2.5%. Even if you went with 10% of a 10% commission rate that would only be 1% of the total. [1] https://www.calicomarketing.com/commercial-real-estate-budget-marketing/budgeting-marketing-listings/ https://www.calicomarketing.com/commercial-real-estate-budge...

kolbe 7y ago

What I don't get is how small some of these numbers are. Weren't some of the figures being tossed around valuing it at $40bn? And their revenues are in the low single digit billions. It's one thing to get sucked in by a company like Uber who does $50b+ in rides, and think how valuable they could be if they figured out how to earn a meaningful chunk of that pie, but WeWork earns virtually no money, and exists in one of the oldest and most competitive businesses known to man. What is the upside that investors are envisioning?

skewart 7y ago
The optimistic case for WeWork is that they have a shot to become an extremely powerful player in the office real estate market. The idea is that they could get to a place where most big companies looking for office space would prefer to do it from WeWork because it's better than leasing directly from a building owner. And most building owners would prefer to lease their space to WeWork because it's better than trying to lease directly - after all, at this point everyone looking for office space is going to WeWork so it's tough to find companies who want to lease directly. Once they're in this position they'll be able to bully building owners into leasing to them at very favorable rates - who else are the owners going to lease to? The idea is that WeWork can do in real estate what cloud infrastructure-as-a-service providers like AWS and Azure are doing in computing. Most companies find it easier to build on AWS instead of running a data center directly. And data center hardware providers find they kind of have to accept the big cloud providers' terms because they don't have a lot of other people to sell to these days. In order to believe this optimistic case for WeWork you have to believe that they are providing a useful abstraction on top of leasing office space the traditional way, and you have to believe that they won't face any deadly competition. Personally, I'm skeptical of both of those, but I think the best case for WeWork providing a really useful abstraction hinges on two things: 1) a secular shift in the way people work leading to highly flexible office arrangements (e.g. instantly spin up an office in Berlin, run it for two months, then shut it down) becoming much more attractive; 2) WeWork being able to structure lease terms in ways that are better for corporate accounting somehow (i.e. it's not a better product at the end of the day, but it looks better on the books). The best case for them winning out over competition comes down to them getting such a big lead in the amount of space they offer and brand recognition that nobody can challenge them - hence the rationale for burning a ton of money quickly to open as many locations as possible as soon as possible. I'm skeptical and I'd argue WeWork is more likely to end up like MoviePass than AWS. (MoviePass had pretty much the same idea and playbook - burn money to get to scale and market power quickly then dictate terms to the suppliers who have been eating into your margins - and it didn't exactly turn out well.) But anything is possible. tl;dr Long-term investors hope that if WeWork can achieve a dominant position in the global office market then they can increase their margins by both lowering their cost to acquire space and increasing the rents they charge. If they pull that off then they can rake in hundreds of billions of dollars and be worth trillions.

qsymmachus 7y ago

WeWork's business model makes more sense when you realize it's probably just a scheme for transferring VC money directly into Adam Neumann's pocket. He owns a number of the buildings that WeWork is leasing: https://www.bizjournals.com/sanjose/news/2019/01/16/wework-ceo-neumann-property-owned-ipo.html https://www.bizjournals.com/sanjose/news/2019/01/16/wework-c...

tomhoward 7y ago
No longer true; he transferred them to a fund owned by the company: https://www.businessinsider.com.au/wework-ark-fund-to-buy-commerical-properties-2019-5?r=US&IR=T https://www.businessinsider.com.au/wework-ark-fund-to-buy-co...
- throwawaytoday5 7y ago
  I don't mean to be facetious but how does that make it better? Doesn't he still control the company that owns the fund? Is it suppose to be better because it "looks" better because with my minimal understanding there isn't a difference.
  - fastball 7y ago
    I mean, it is different / better. Now, if WeWork goes belly up, Neumann doesn't get to keep the buildings.
    - elmomle 7y ago
      But he gets to keep the money that they paid him for the buildings.
  - tomhoward 7y ago
    His personal ownership was a problem as it created a conflict of interest between his personal property assets the the company, so you have scenarios where he is engaging in related party transactions [1], i.e., potentially entering into lease agreements at above-market rates, to benefit himself personally, and (as the sibling commenter pointed out), having highly valuable property assets, funded by company loans, that remain in his personal ownership even if WeWork goes out of businesses. When the company owns the properties, that ceases to be the case, as there is no conflict of interest between property owner and occupier as they are one and the same. He is (and was) still always legally obliged to act bona-fide in the interest of the company (i.e., act as much for the benefit of minority shareholders as his own). It was just harder to scrutinise when he was both the majority shareholder of the company, and landlord for some of its properties. That is no longer the case. [1] https://en.wikipedia.org/wiki/Related_party_transaction https://en.wikipedia.org/wiki/Related_party_transaction

lifeisstillgood 7y ago

The City of London is having a skyscraper boom at the moment - two major 100+ floor buildings are going up and you can hardly turn a corner without some crane or building work going on. I personally (and without any empirical evidence) think that there is no way London needs this much more office space, partly because "Brexit China Tariffs", but mostly because remote working and "just not in the office five days a week" is becoming a thing. Turning that sterile office space onto more live/work/mix-it-up space, perhaps floors 1-20 as office and 20-40 as apartments or something, will almaot certainly be a feature of the next twenty years. And all that office space and living space and mixed something or other we don't quite get, all that will need to be sold and packaged and marketed. And so, long story long, whilst WeWork may look like a joke, may be a "lose money on each sale but make it up in volume", something like WeWork may just be the Hoover or the Pullman coach of mixed live work office buildings. Because mixed live work office buildings will be the Pullman coaches of tomorrow's cities - cities have a new brighter car free future, where Barcelona's mega-blocks will meets the density of skyscrapers. But it needs ... looking after. Putting a millions tons of glass and steel pointing straight up is an awesome technical achievement Making that tower somewhere that families can live, love, shop and work is a different skill set entirely. It won't look like building service companies do today. It might just look like WeWork (Thank you, normal cynical and cutting remarks will resume shortly)

professorTuring 7y ago
> [...] perhaps floors 1-20 as office and 20-40 as apartments or something, will almaot certainly be a feature of the next twenty years. Please be wrong, please, please, please... If I just can telecommute I don't want my workspace being my live space and my neighbours being my coworkers. That can may be a thing if you are living by your own, living in a foreign city and without family. I can't see it other way.
- tomatocracy 7y ago
  One thing the City as an area is short of is hotel space. Hotels or part-time occupancy residential (serviced apartments and second homes) feels much more realistic for that space than "true" residential space.

TazeTSchnitzel 7y ago

I feel like something must be seriously wrong with capitalism if it can keep creating these startups and funnelling endless hundreds of milions into them so they can accumulate debt, lose money, and achieve absolutely nothing of value.

codeisawesome 7y ago
I loved working at WeWork in Singapore for my remote ex-employer, and will definitely do it again with my own cash if I need to work by myself. All the other Coworking spaces (a dime a dozen in this town, I tried them all) had issues with something or the other. I think they do create something of value, and so do ridesharing companies (I love using them and hate the experience of hunting for taxis). Maybe it’s incorrect to look at just short term revenue/profit figures when deciding if these companies are creating wealth for their users...
umanwizard 7y ago
Even if that’s true, why should it bother you that money is being extracted from rich VCs and distributed to other rich people in the worst case, and working- and middle-class employees and customers in the best case?
- Ididntdothis 7y ago
  Don't forget that the rich VCs are often not putting up their own money but often pension funds from your local municipality .
- randomsearch 7y ago
  Aren’t the rich VCs cashing in on the IPOs and letting the markets take the losses? Classic bubble behaviour - pay plenty so long as someone else will pay more.
  - TazeTSchnitzel 7y ago
    Sort of like a ponzi scheme requiring a constant inflow of cash, where those who get out earlier are fine and the rest lose?

deleted 7y ago

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tomhoward 7y ago

I have a bit of knowledge of the co-working industry. I’m good friends with the founder of the first and long-dominant tech/creative co-working space in my Australian city, and I served on its advisory board in the past couple years, through what turned out to be a distressed sale of the business to its landlord, after it became insolvent and unsalvageable. There are several fundamental flaws with the concept that make it very hard for this kind of business to work: 1) Difficult/unpredictable/uncontrollable customer retention Most of your customers are individual freelancers and early-stage companies up to about 20 people. If they become successful, they outgrow the space and leave (possibly after a period of tenancy on negotiated discounted rates because “hey it would really hurt you guys if we left”). If they are unsuccessful, they go out of business and leave, possibly after a couple of months of non-payment (“oh man we’re just waiting for a big payment/financing, we’ll be able to pay next month for sure”), which is hard/impossible to recover once they’ve left. And even where people remain eligible customers, the transient nature of the customer-supplier relationship means it's easy to jump ship if a cooler space opens around the corner. So you’re running this revolving-door business, where retention is only partially within your control, and having to invest heavily on new customer acquisition (often involving free trial periods and other incentives) to keep up with churn. Your most reliable customers in terms of tenancy and payment are remote workers/teams for bigger interstate/international companies, but too many of them and the culture can become too corporate-feeling and less appealing for everyone - them included. 2) High setup costs and fixed running costs Rent, fit-out, furniture, facilities, utilities, cleaning/maintenance, staff, etc. Most of these costs are largely independent of occupancy levels/revenues. 3) Difficulty finding/keeping good staff The “community management” job in these places is highly specialised and demanding. All day you’re dealing with human problems that are exacerbated by people’s stresses about their business or job, as well as all the minutiae of things like the toilets/kitchens being clean/stocked, meeting room booking windows being adhered to, ensuring that the people in the space are all people who are meant to be there. Emergency calls from people who e.g. left their wallet in the space that day and “just need someone to let me in to grab it” (at 9.30pm) become routine occurrences once you reach a certain scale. Beyond these practicalities, the people in these roles set the mood for the whole space, and can make all the difference between it being a welcoming and happy place or a dull/miserable one. Finding people who can not only do this kind of work all day every day, but do it with an enthusiastic and friendly demeanour, is very difficult, and burnout/turnover is common. In general, the kinds of people who can do this job really well can get a less-stressful/better paid job elsewhere (quite possibly for one of your resident companies). 4) Competition/substitution The market in many cities has become saturated (partly thanks to WeWork itself). This pushes market rates down, acquisition/retention costs up, expectations up (“the other place has FOUR types of kombucha on tap”), and dilutes the pool of potential residents and staff. And after all, what you’re offering is not essential for freelancers/small companies anyway. They can easily work from home, cafes, borrowed/subleased space with other companies. It seems the only way to make these businesses financially viable is by partnering with something like a startup accelerator/investment company or an R&D body backed by industry and/or academia. But this requires deep links with local community/industry, and is a huge amount of work to establish and manage. For a player like WeWork, this kind of work is hard to do as it can’t be done with a cookie-cutter approach, and local collaborators for these kinds of partnerships often prefer to work with locally-owned businesses rather than big outsiders. So, we’ll wait and see. Maybe WeWork has something up their sleeve that will allow them to build a model that works. I’ll be interested to watch it play out.

ed_elliott_asc 7y ago

Pretty certain that paying for wework is a vanity project. You get biscuits and beer and a nice location but you don’t need any of it

codesushi42 7y ago

A bubble company, pure and true. What's new? This one is riding the wave of both the commercial real estate and tech bubbles. Brilliant.

BIKESHOPagency 7y ago

I realize I'm probably a bit of a unicorn, but I've coworked in the same co-working office for over 8 years. The businesses in the office have changed and there has been some turn over in those years but 50% of us have stayed! Those of us who have stayed the past 8 years have cycled between self employed, and employed full-time, often years at a time for one company. We live in a small town in Colorado that has never provided work opportunities in our field, but we've always been successful working remotely. Small town co-working has provided a huge value for us: no commute, we're out of the house, camaraderie, friendship and support. Maybe this is an example of a profitable co-working. I know that in these past 8 years the owner has done very little recruiting and the desks are always full.

JamesAdir 7y ago

As much as I love reading all the commenets here that try to use rational and great thoughts about WeWork, they forget one thing - this company for a very long time is a classic pump and dump. Even the founder sold stocks just a while ago. There is no business reason, unique technology or anything else that will even try get close to the numbers of this company. I just hope that when it collapses it will be contained and not affect the entire technology sector.

OkGoDoIt 7y ago

One thing I never see mentioned in any analysis of WeWork is Regus, which does more or less the same thing but with less fanfare. They’ve been running coworking spaces and short term office rentals around the world for a long time. Do the two companies have similar business models? Can we look to Regus’s long history to better analyze WeWork’s prospects? It’s not like WeWork invested co-working spaces, so I don’t understand why everyone acts like they did something novel. On a personal note, I’ve been a happy user of Regus for nearly a decade and I can’t imagine switching to WeWork. The WeWork offices I’ve been to are large open offices or glass-walled. They have better kitchenettes but not astronomically better. And the whole vibe feels very unprofessional, one step up from a coffee shop. And they cost a lot more. I don’t get it.

bertil 7y ago
I was genuinely surprised to read your impression of Regus. I worked at their offices twice and both times, I was surprised they were still in business. The first time I’ve heard about WeWork, I was excited precisely because I thought Regus was hogging a necessary service.
joelhaasnoot 7y ago
Regus is the 1990s business services company that has never heard of the internet...
notahacker 7y ago
WeWork has a lot of brand differentiators from Regus (free beer and networking vs quiet efficient blandness for getting stuff done. Different strokes for different folks). But yes, there's nothing remotely new about the model (Workspace Group has also been doing it for three decades in the UK) and whilst these companies are certainly profitable, their valuations are somewhat closer to the real world.
danpalmer 7y ago
I had a look at working in a Regus when I was on a long trip to a foreign country. The whole feeling was super stuffy. I first had to have a sales call with someone who didn't really seem to know what they were talking about, then he wanted me to come and visit, then it became apparent that he was talking about the wrong location. The space was a very boring environment with a cheap fit-out. The price wasn't great. I ended up working in a local co-working space. I walked in off the street and the owner showed me around. I said I was only there for a short period and he suggested some custom pricing. He was friendly and knew what he was talking about, the office manager was friendly and again had answers to everything I wanted to know and more. The space was interesting and felt nice to be in, while still providing a good working environment to put my head down and work in. I've never worked in a WeWork, but I've visited a bunch, and they always strike me as much closer to the latter than the former.

randomsearch 7y ago

When the recession hits (more controversially the bubble pops), I’m not sure what will happen to WeWork. I would guess it will collapse, as tenants leave and it can’t pay for its rental costs. But on the flip side, in a recession landlords become much more open to renegotiating terms, and more people freelance or start their own business when they lose their jobs. So it’s possible WeWork could somehow claw their way out of it.

cherrypepsi 7y ago
There's an interview to Neumann by BI where he talks about that exact same thing. Makes one wonder if they're betting it all on a recession for things to "work" (heh) The interview, soft paywall: https://www.businessinsider.com/wework-ceo-adam-neumann-business-model-softbank-ipo-risks-2019-5?r=wework-10yr https://www.businessinsider.com/wework-ceo-adam-neumann-busi... I don't like this pattern, more than VC funded startups they are more like QE funded startups, regurgitating your own devalued money as a favour. Uber comes to mind, too.

dalbasal 7y ago

Control/ownership/structure aside, the interesting line here is: "The financial disclosures make it clear that WeWork — which, it should be said, is a commerce office leasing company and not truly a tech company" Lots of tech companies (eg uber) take VC funded losses to grow at tech startup rates. This can create unsustainable business models and mask sustainability issues. But... ..But, in tech, the potential payoff driving all this investment flow is getting to a monopoly (in the Thiel sense). Out of this world business models like Google's or FB's that generate massive revenue with near-zero marginal costs. Software economics, basically. The winners win incredibly big. This makes the massive-multiple investment case rational. Tesla, WeWork and such have much more normal, non-software-like economics. WeWork will never lease office space for that much above market rates. No matter how good Tesla's cars and/or manufacturing tech gets, they are never going to sell cars at a 40% margin^. That's why Elon had to sell all the Tesla share and take loans. It takes a lot of resources to build factories and cars. Office space can be leased, so WeWork hasn't needed as much financing, but it comes out of operating margins instead. You basically cannot achieve software startup money-machine goals with atoms and marginal costs. ^Self-driving aside.

RyanAF7 7y ago

I'm sorry, who the frack is this CEO? How are these anti-savvy CEOs getting this much money in the first place? What investor looked at this kind of model and went...oh hell ya, Imma dump money into that. Massive real estate speculation you say? Shrinking capital gains you say? No downside risk of massive customer fallout or systemic risk of market downturns you say? Oh...you're saying all those things are totally possible and very likely! Well in that case just take 75% of all my money for your little scheme.