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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 prope

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...
  - dillondoyle 7y ago
    Maybe that 'sales and marketing' figure includes discounts on rent to gain new tenants?

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...
- dillondoyle 7y ago
  Maybe that 'sales and marketing' figure includes discounts on rent to gain new tenants?