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A lot of the behaviors of the founder seem outrageously fishy, however they are legitimately filling a rapidly growing need. At this very moment I have the WeWo

A lot of the behaviors of the founder seem outrageously fishy, however they are legitimately filling a rapidly growing need. At this very moment I have the WeWork Toronto locations page open as I contemplate biting the bullet on a private office there just to get out of the home office occasionally.

jngreenlee 7y ago
Be sure to cost/feature compare too! https://www.regus.ca/office-space/canada/ontario/toronto https://www.regus.ca/office-space/canada/ontario/toronto
- chx 7y ago
  Frankly, this is what I don't understand in this whole charade. IWG has a decent 2.5 billion yearly revenue and wringes a paltry 0.1B net income out of it. I mean, good for you, employing near 10 000 people and still being profitable but still, a 4% profit margin. That's razor thin and it's not immediately visible what WE is going to do so much better -- or better at all.
yao420 7y ago
There are dozens of non-WeWork coworking spaces across Toronto.
- endorphone 7y ago
  For sure, though the common model seems to be going in a class B building on a highway somewhere on the periphery and setting up an incredibly drab, soul crushing office. I've worked for Bell and RBC -- I've already done the soul crushing office thing. I have absolutely no doubt that I've missed some good ones, but that's how WeWork made me interested in something that I'd put off for so long -- really nice looking interiors in great parts of town/great buildings. They are in no way a tech company, however their aesthetic and values do more closely mirror tech companies than a lot of their competitors that are low cost satellite office providers for low-tier organizations.
  - stingraycharles 7y ago
    The reason WeWork is a better offering is that they’re losing money and investors are paying for this nice interior. This is all nice for customers, but makes for a shitty investment. WeWork doesn’t have any real competitive advantage when you want to turn it into a healthy, profitable company. Then it will just be any other coworking space; perhaps a more fancy one, but also more expensive.
    - dyarosla 7y ago
      You’re disregarding brand appeal. Starbucks has no real competitive advantage over Local Coffee Co. other than great location, decor and brand appeal too. Thats what OP argues were the deciding factors for them. To attribute nice decor as being nothing more than a sunk cost is erroneous at best.
      - CPLX 7y ago
        That's not correct. Starbucks has incredible economies of scale and purchasing power at this point. Clearly Wework has at least some economies of scale, but as for purchasing power not so much. The mass importation, distribution, and sale of a perishable agricultural product is a whole different kind of thing.
        glaive123 7y ago
        Starbucks also has incredible gross margins of close to 60%. Almost as high as a SaaS business (70-95%). WeWork has 10-15% gross margins. "Gross margin is a company's net sales revenue minus its cost of goods sold (COGS). The gross margin represents the amount of sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells."
        dyarosla 7y ago
        Starbucks does not have more competitive gross margins than Local Coffee Co. would to be a big enough differentiator.
taylortbb 7y ago
In Toronto if you're looking at WeWork look at Workhaus as well. My employer just rented with them and I'm pretty impressed. Definitely not boring suburban spaces.
sameers 7y ago
I think the author's point is, that in a recession, you wouldn't bite the bullet, because you (the average consumer) become cost-conscious. The idea is that therefore, WeWork's revenue model can turn on a dime but their debt obligations go nowhere when that happens, and then they are in a hole. Moreso, the author's point is that other businesses that have these long-term depreciations trade their equity at a much smaller revenue multiple. He's basically saying, you can't escape the fundamentals.
- DenisM 7y ago
  Recession could be hedged with stock options, no? At their scale they will get custom-tailored option product to match their liabilities.
  - huac 7y ago
    it'll be super expensive to hedge -- the higher the volatility of the underlying asset (here, the number of people who pay for a desk or whatever), the more valuable/expensive an option on that asset is. but I also don't think it makes a ton of sense. in effect, WeWork would reduce their cash flow growth, with payments going towards hedging. their entire pitch is that they are a fast growing company, which justifies an insane multiple, any hedging would reduce that risk. you don't hedge against decreases in demand via financial instruments, instead you: 1. hedge against decrease in demand through diversification of services; if wework sells some property management software (for example) then that might be more recession-resistant than their actual leasing business. 2. hedge against decrease in demand through long-term contracts: getting IBM to sign a 10 year lease (for example) is usually a safe bet that you'll have a tenant through the recession; on demand hot desks are much less safe 3. hedge against cost increases using financial instruments: most corporations doing hedging are hedging against commodity price changes, e.g. airlines buying oil futures or mcdonalds buying beef futures. similarly, wework might buy kombucha or aluminum cup futures, but there is no derivatives market for on-demand desks :) of course, there are different perspectives on this. matt levine has a really interesting column about the different philosophies of where diversification belongs, at the corporate level or at the investor level: https://www.bloomberg.com/opinion/articles/2019-04-09/ceos-learn-something-in-business-school https://www.bloomberg.com/opinion/articles/2019-04-09/ceos-l.... my finance classes were relatively recent so you might be able to tell my bias.
PunksATawnyFill 7y ago
Would it not be more economically prudent to simply rent a small office? When I looked into these shared spaces, I found them to be a significant rip-off.
- briandear 7y ago
  ..until you pay utilities, sign a lease, pay various insurance, furnishings, security, reception, etc. The rent cost of a small office doesn’t include all of the various things you have to often pay to make it I habitable.
  - ido 7y ago
    Depends on scale & of course location/local market. If you're only a couple of workers it isn't cost competitive to rent your own office and take care of everything.

jngreenlee 7y ago

Be sure to cost/feature compare too! https://www.regus.ca/office-space/canada/ontario/toronto https://www.regus.ca/office-space/canada/ontario/toronto

chx 7y ago
Frankly, this is what I don't understand in this whole charade. IWG has a decent 2.5 billion yearly revenue and wringes a paltry 0.1B net income out of it. I mean, good for you, employing near 10 000 people and still being profitable but still, a 4% profit margin. That's razor thin and it's not immediately visible what WE is going to do so much better -- or better at all.

yao420 7y ago

There are dozens of non-WeWork coworking spaces across Toronto.

endorphone 7y ago
For sure, though the common model seems to be going in a class B building on a highway somewhere on the periphery and setting up an incredibly drab, soul crushing office. I've worked for Bell and RBC -- I've already done the soul crushing office thing. I have absolutely no doubt that I've missed some good ones, but that's how WeWork made me interested in something that I'd put off for so long -- really nice looking interiors in great parts of town/great buildings. They are in no way a tech company, however their aesthetic and values do more closely mirror tech companies than a lot of their competitors that are low cost satellite office providers for low-tier organizations.
- stingraycharles 7y ago
  The reason WeWork is a better offering is that they’re losing money and investors are paying for this nice interior. This is all nice for customers, but makes for a shitty investment. WeWork doesn’t have any real competitive advantage when you want to turn it into a healthy, profitable company. Then it will just be any other coworking space; perhaps a more fancy one, but also more expensive.
  - dyarosla 7y ago
    You’re disregarding brand appeal. Starbucks has no real competitive advantage over Local Coffee Co. other than great location, decor and brand appeal too. Thats what OP argues were the deciding factors for them. To attribute nice decor as being nothing more than a sunk cost is erroneous at best.
    - CPLX 7y ago
      That's not correct. Starbucks has incredible economies of scale and purchasing power at this point. Clearly Wework has at least some economies of scale, but as for purchasing power not so much. The mass importation, distribution, and sale of a perishable agricultural product is a whole different kind of thing.
      - glaive123 7y ago
        Starbucks also has incredible gross margins of close to 60%. Almost as high as a SaaS business (70-95%). WeWork has 10-15% gross margins. "Gross margin is a company's net sales revenue minus its cost of goods sold (COGS). The gross margin represents the amount of sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells."
        dyarosla 7y ago
        Starbucks does not have more competitive gross margins than Local Coffee Co. would to be a big enough differentiator.

taylortbb 7y ago

In Toronto if you're looking at WeWork look at Workhaus as well. My employer just rented with them and I'm pretty impressed. Definitely not boring suburban spaces.

sameers 7y ago

I think the author's point is, that in a recession, you wouldn't bite the bullet, because you (the average consumer) become cost-conscious. The idea is that therefore, WeWork's revenue model can turn on a dime but their debt obligations go nowhere when that happens, and then they are in a hole. Moreso, the author's point is that other businesses that have these long-term depreciations trade their equity at a much smaller revenue multiple. He's basically saying, you can't escape the fundamentals.

DenisM 7y ago
Recession could be hedged with stock options, no? At their scale they will get custom-tailored option product to match their liabilities.
- huac 7y ago
  it'll be super expensive to hedge -- the higher the volatility of the underlying asset (here, the number of people who pay for a desk or whatever), the more valuable/expensive an option on that asset is. but I also don't think it makes a ton of sense. in effect, WeWork would reduce their cash flow growth, with payments going towards hedging. their entire pitch is that they are a fast growing company, which justifies an insane multiple, any hedging would reduce that risk. you don't hedge against decreases in demand via financial instruments, instead you: 1. hedge against decrease in demand through diversification of services; if wework sells some property management software (for example) then that might be more recession-resistant than their actual leasing business. 2. hedge against decrease in demand through long-term contracts: getting IBM to sign a 10 year lease (for example) is usually a safe bet that you'll have a tenant through the recession; on demand hot desks are much less safe 3. hedge against cost increases using financial instruments: most corporations doing hedging are hedging against commodity price changes, e.g. airlines buying oil futures or mcdonalds buying beef futures. similarly, wework might buy kombucha or aluminum cup futures, but there is no derivatives market for on-demand desks :) of course, there are different perspectives on this. matt levine has a really interesting column about the different philosophies of where diversification belongs, at the corporate level or at the investor level: https://www.bloomberg.com/opinion/articles/2019-04-09/ceos-learn-something-in-business-school https://www.bloomberg.com/opinion/articles/2019-04-09/ceos-l.... my finance classes were relatively recent so you might be able to tell my bias.

PunksATawnyFill 7y ago

Would it not be more economically prudent to simply rent a small office? When I looked into these shared spaces, I found them to be a significant rip-off.

briandear 7y ago
..until you pay utilities, sign a lease, pay various insurance, furnishings, security, reception, etc. The rent cost of a small office doesn’t include all of the various things you have to often pay to make it I habitable.
- ido 7y ago
  Depends on scale & of course location/local market. If you're only a couple of workers it isn't cost competitive to rent your own office and take care of everything.