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WeWork considers IPO valuation of as low as $10B

190 points by aresant 7y ago

finkin1 7y ago
I know the feeling around WeWork's IPO is to poo all over it, but let's take a step back and remember that all valuations at this point at just reports. It was reported that WeWork was going after 20B-30B, now it's reported they're going after 10B. When articles cite "sources" I'm pretty skeptical. Like all other IPOs, the bankers are going to price the stock based on what they think the market will buy. There's always intangibles that are difficult to evaluate, and maybe WeWork's IPO has more of those intangibles than usual, but I don't think we're outside of the realm of normalcy. Well, maybe we are in a massive tech bubble. I guess time will tell.
- samnwa 7y ago
  They recently raised funding at $47 billion though. So it's more than "just a report".
  - mytailorisrich 7y ago
    Yes, Softbank invested at that valuation. That's their problem, really as that's a crazy valuation. For an IPO underwriters will look for a more reasonable number as they have to actually flog the shares to the market. If the IPO goes ahead at 10b valuation, Softbank will have to write off a massive amount and thus they are unsurprisingly fighting against it.
    - benj111 7y ago
      It may be a crazy valuation but it's legitimate, someone paid money at that valuation. House prices in X are crazy, but people will pay that, so that is a valuation. Yes eventually the buyers and sellers will have to balance out, starting from a price someone has actually paid seems entirely reasonable though. The IPO underwriters started off mentioning a $65bn valuation, most probably based on the $47bn previously paid.
      - mytailorisrich 7y ago
        One investor paid that price. That's the issue with illiquid assets that suddenly become liquid: What one person is willing to pay may not represent the market consensus. A house or a piece of art is a bit different because you always only need to find one buyer. But a company's shares traded on the open market are extremely liquid.
        benj111 7y ago
        If I go to the stock exchange and buy one share of a company at double the going rate, then until another exchange occurs my price is the going price, and the 'value' of the company as doubled. I'm not saying its the answer, I personally find it unsatisfying, but it is an answer, and on some levels the only answer that matters.
        perl4ever 7y ago
        Why do you think your share determines the price of all the other shares? Is it special somehow? If nobody traded at all for a year, would that mean the company is worth zero, or that its worth is undefined?
        benj111 7y ago
        I have shares I havent traded in a while, if I go on to my account I will be shown the latest price along with a profit or loss. That latest price is based on what the last person actually paid, that's the only thing that makes it special. But don't forget that theres 2 sides to the market, it's the last price someone agreed to sell at, because that's what we are talking about, the crossover where buyers match sellers. Now if I decided to sell my shares based on that, would I be guaranteed to also get that price? No, there could be a flash crash, there could be results just announced, there could be any number of reasons to make the stock go up or down, or more precisely attract or scare away investors. In general though I would expect to get a figure close to the price that I saw, because theres not much that can fundamentally change in the few minutes between trades. On a stock that hasn't been traded in a year, the only thing that really changes is the error bar, the price isn't going to be within 0.1% of the last one, it's going to be within 100% or something. Having someone actually pay money for something really is the acid test. I can slap a price tag on something, but if no one buys it than is it really worth that? We can sit around coming to more or less reasonable valuations, but ultimately if Wework floats and trades at $100bn valuation, then no amount of armchair opinioneering is going to change that, people are putting their money where their mouth is, and as I seem to mention on every stock market thread, the best thing about the stock market is you can put your money where your mouth is.
- john_moscow 7y ago
  Those reports are used to gauge the public opinion. You "leak" that the valuation is going to be $XYZ and then watch the public comments, news reports et al to estimate how willing will the public be to buy in at this price.
  - JMTQp8lwXL 7y ago
    Do you do a follow-up Twitter sentiment analysis, or do you really only care about the banker's commentary? Anyone on here, or CNBC, or Cramer's show is just the peanut gallery. We aren't the market makers.
- JMTQp8lwXL 7y ago
  If there are more intangibles than tangibles, there is more unknown than known, and it should be priced accordingly (e.g., lower).
  - finkin1 7y ago
    You're probably right, which appears to be what's happening. In the end I think the market will decide what's low enough. I'm very curious to see what happens to the stock if/when it starts trading.
    - JMTQp8lwXL 7y ago
      Given all the negative public sentiment, my guess is the will work extra hard to get price discovery just right so it won't much at all on IPO day. As we're seeing, that likely means a significant decrease from We's most recent valuation.
- pgwhalen 7y ago
  The “reports” are just the bankers putting out offers essentially, and seeing how the (investing) public reacts. So on the one hand, they’re extremely real because they’re from the people who will eventually set the price, but on the other hand they’re extremely fake since not necessarily anyone has expressed an interest to transact at that price.
duxup 7y ago
With all the bad karma / news out there at this point, what are the odds that they can get any significant money publicly ... and maybe privately now that so much dirty laundry is out there?
kmfrk 7y ago
This is basically a Dutch auction as IPO at this point.
- Basketb926 7y ago
  https://en.wikipedia.org/wiki/OpenIPO https://en.wikipedia.org/wiki/OpenIPO "OpenIPO is a modified Dutch auction" "number of companies public including Morningstar, Interactive Brokers Group, Overstock.com, Ravenswood Winery, Clean Energy Fuels, Boston Beer Company" WeWork is experiencing this type of auction but strangely in the media instead of in communications between actual investors
echelon 7y ago
This is much different from $47 billion. They know that we've caught on to the sham, and now the investors just want liquidity so they can dump this mess onto others. They're hoping some will see this as a bargain so they can still get an exit. Don't trust this.
shosko 7y ago
I think WeWork is still a bit ahead of its time. Some see its value as culture, others see it as real estate. The ways we live and work are changing, but changing any culture takes time. I still feel that We Work is creating the future, but that value is still based on change that's inherently slower than we'd like.
- mises 7y ago
  > Some see its value as culture, others see it as real estate. Can you point me to more information on the "culture" point of view? I have trouble seeing what kind of culture we work has, let alone how a culture can be monetized. But what's special about its "culture", any way? Real estate is at least valuable; for a while, I wondered if it would turn into the world's weirdest REIT. What future is it creating?
  - michaelt 7y ago
    According to their S-1 [1] We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success. [...] We start by looking at space differently: as a place to bring people together, build community and enhance productivity. Philosophically, we believe in bringing comfort and happiness to the workplace [...] Nine years ago, we had a mission to create a world where people work to make a life, not just a living. We believed that if we created a community that helped people live life with purpose, we could have a meaningful impact on the world. [...] Each of our spaces is designed to make our members feel welcome and at home, and to encourage a sense of belonging. We believe that individuals are more productive when they are able to express their full and authentic selves, so we aspire to be as inclusive as possible. As a grumpy cynic personally I don't really go for that stuff, but they've put it in the prospectus so presumably they think other people do. [1] https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
    - mises 7y ago
JMTQp8lwXL 7y ago
Even $10 billion feels too high. I wonder what they were thinking when they filed the S-1. That after reading that document, we'd all be inspired by the vision and clearly see the ~$40 billion valuation, and see opportunity for growth on top of that, such that the public would want to invest as it grew beyond 40? The trust in this company and its leadership is gone, and it will be difficult to correct. Perhaps the quarterly announcements will save them in a year, if it's shown to be a profitable business.
- mrweasel 7y ago
  Regus, which I recall correctly is valued at around 4.5b USD, so WeWork should be less than that, but not proportionally so, given their much better branding.
  - nugget 7y ago
    I'm more skeptical of WeWork's culture and valuation than most, but I will give them credit for creating the best quality product in the market. When I need conference or office space in various cities I don't compare WeWork to Regus, I just find the nearest WeWork space and book there. Our portfolio companies do the same. For people who travel often, there is a subtle network effect that provides value. Regus is irrelevant in this sense, and irrelevance can be particularly deadly for valuation. Perhaps Regus can re-invest into their brand to become competitive - and I hope they do, because more competition would be healthy.
  - JMTQp8lwXL 7y ago
    WeWork could have a substantially different portfolio of real estate assets. I think looking at Regus isn't a bad idea, but then consider it in the context of what WeWork has (though, I am not privy to knowing how many, if any, of WeWork's real estate assets are "paid off").
    - ivalm 7y ago
      Most of them are rented not owned by weworks. WeWorks is in the business of subleasing.
cj 7y ago
Just to get a sense of IPO pricing incentives: Who benefits when an IPO like this is underpriced? And who benefits when an IPO is overpriced? Is there anyone incentivized to price an IPO accurately?
- benj111 7y ago
  Its a market, the IPO is always priced accurately in as far as buyers match sellers. Obviously the bankers wanting to conduct the IPO, want to give the IPOee a high valuation figure, but the scale is normally lower than this. Existing stock holders will obviously want a high valuation, and want to be given a high valuation by the bankers. In other words, rowing back on the price isnt that unusual, the scale here is vastly different though.
- ganitarashid 7y ago
  Insiders cashing out is more important than anything apparently
  - deleted 7y ago
    [deleted]
  - cj 7y ago
    Insiders can't cash out until after the lock up period, after which the price should have stabilized to whatever the market think it's worth, right? (So the IPO price isn't as important as the price the market settled on a few months later, by that logic) Or is that thinking too simplistic?
    - dymk 7y ago
      Early investors are not necessarily subject to lockouts
    - oarsinsync 7y ago
      Unfortunately, yes. Softbank has taken out loans secured with Uber stock during the lock up period. If the value of Uber tanks, Softbank retains the money, and the bank takes the stock. Softbank has effectively sold their stock ahead of time, removing any downside risk. On the flip side, if Uber stock goes up, Softbank can sell their Uber stock (post-lockup) at a profit, pay back the loan, and enjoy all the upside reward. I'm reasonably sure I've read reports that they've taken out secured loans on their Wework stock too. Effectively sold the downside risk before IPO. Also, depending on what category of investor you are, you have liquidation preferences. You may be the one providing the stock that's being sold at IPO.
brosinante 7y ago
I can't believe we might lose the free beer on tap after this, it's an outrage.
templatewe 7y ago
Wow! How did they come up with this valuation? I assumed the bankers that were part of this deal would have based their valuation on something solid. But this is an 80% discount in a span of 6 weeks. Something is seriously not right with this company. It seems like its build on a house of cards.
- Ilverin 7y ago
  Quote from Matt Levine: https://www.bloomberg.com/opinion/articles/2019-09-09/we-might-not-be-working https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig... Well, I just got through saying that there’s not really any reward for being pessimistic and right about valuation when you are pitching an IPO. Your optimistic competitors will get the mandate, and then spend some time walking the company back ... On the other hand it is a repeat game and there are occasionally penalties for getting it wrong: ... it will be rough for Morgan Stanley if winning the biggest IPO prize [Uber] of the unicorn era loses it the biggest IPO prize of all time [Saudi Aramco]
  - dehrmann 7y ago
    > Saudi Aramco Complete aside, but the ~second largest oil producing country is selling part of its state-owned oil company. Yes, they're trying to diversify so they're not just a petrostate, but this should be a red flag for the oil industry.
- dawhizkid 7y ago
  I wouldn’t look too deep into it. Private valuations are mostly meaningless. This goes for everyone.
- linuxftw 7y ago
  > But this is an 80% discount in a span of 6 weeks Discount is the word they want you to hear in your head. The valuations are all imaginary. By setting such a high previous valuation, people now look at the current valuation in the context of that, instead of what it should be: $0.
RyanAF7 7y ago
A generation of Enrons. Good god, do people so quickly forget?
hendzen 7y ago
I wonder how history will look back on Reid Hoffman's book, "Blitzscaling". The premise seems bit ridiculous now in light of recent problems at WeWork and Uber.
- bsbechtel 7y ago
  It's always a good idea to be skeptical of someone making claims you need lots of capital to rapidly scale your business when that person is selling capital for a living.
  - benj111 7y ago
    You do need lots of capital to scale rapidly (I don't sell capital for a living). If you're a company and want to expand you either use your profits, or borrow money, the more money you borrow, the more widget machines you can buy. The open question is how big you should grow before demonstrating profitability.
    - jppope 7y ago
      well we're all sitting around here talking about WeWork and not the other million co-working spaces... so in way their plan worked.
      - linuxftw 7y ago
        I only hear about wework hear, via the media. If this was a penny stock, we'd call it a pump and dump scam. I know tech people all over the US and Europe and literally no one has ever spoken the word 'wework' outloud to me.
    - airstrike 7y ago
      I'd make the follow small modification to the parent's quote: I's always a good idea to be skeptical of someone making claims you should raise lots of capital to rapidly scale your business today or in the near term, as opposed to other strategic alternatives when that person is selling capital for a living.
benj111 7y ago
The Unicorns wander out of the enchanted forest, and turn out to be just horses with a stick stuck to their head. Theres been much hand wringing about the sky high valuations, and its not really surprise when push comes to shove, those valuations don't play out. How a $65 billion potential valuation (or $47bn 'actual') becomes a $10bn float will be a write up I look forward to though.
- askafriend 7y ago
  A couple of bad companies don't characterize an entire market. Have you forgotten about the successes already? Slack, Zoom, Pinterest, PagerDuty, Okta, Cloudflare, Twilio, Shopify, Twitter, LinkedIn, Facebook, Roku, Elastic, etc etc. They all IPO'd this decade and are enormously successful and have justified their valuations. This is a Softbank-specific problem. Not a problem with all companies.
  - benj111 7y ago
    I'm not saying they're bad companies, just that they've been blown up to mythical proportions, Unicorns don't exist, their tears won't cure all ailments, they don't fart rainbows, and Wework is probably more reasonably valued as a property company, not a tech company. Facebook fell after it's IPO by quite a lot btw.
lordnacho 7y ago
Is anyone informed about the consequences of such a down-round? I haven't kept an eye on their incoming investments, but you'd think there might be some unhappy investors there with various clauses in their terms? This has probably been the most criticised IPO I've heard of in recent times. Interesting that the market is actually not allowing them to sail right through on their own terms, it's as if all the ridicule actually makes people think about whether to buy it.
- mosdl 7y ago
  Imagine all the people who exercised options...
- jannotti 7y ago
  I've been trying understand this too. If you have a liquidation preference on your preferred shares that says you get your money out before others, does that just go away in an IPO? If it applies, how? Because it's not like there's a buyer who is putting up the entire market cap in cash. But if it goes away, that's kind of an amazing loss of value for those holders. Do they have to agree to the IPO? (Maybe usually they do, but here Adam has super voting rights?)
  - thedudeabides5 7y ago
    Lots of people rambling their opinions here, but agree with this thread that having some actual information on what the consequences of such a down round would be, given the liquidity preference in their venture rounds. Crunchbase says $12.8bn of prior investment. Wouldn't that mean with a 1x liquidation pref that all the employees (including the CEO) would get wiped out?
    - thedudeabides5 7y ago
      https://www.crunchbase.com/organization/wework/funding_rounds/funding_rounds_list https://www.crunchbase.com/organization/wework/funding_round...
    - marcinzm 7y ago
roymurdock 7y ago
Matt Levine as usual called how this would play out. He said we work would start dropping the weird voting/control privileges ("corporate governance concessions") that founders have enjoyed on recent "tech" IPOs. He also said investors wouldn't care much and this latest news confirms that. His conclusion: "But now WeWork seems to be facing the traditional tradeoff: Stay private, keep control, but lose access to billions of dollars of funding, or go public, raise unlimited money, and have to act normal. If it does either of those things, that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could stay private without giving up the benefits of being public, or they could go public without taking on the burdens of being public. Now they might have to make hard choices again."
- duxup 7y ago
  I wonder how much of this is about timing and perception of potential public investors? Early enough and maybe you don't get as much money, but the public money might be more willing to take a chance on who knows what might happen. Too late and enough people have pointed out that the emperor has no clothes and people start to belive / realize it.
- rajacombinator 7y ago
  Any studies out there of returns on companies that have made “governance concessions” as you describe them? I’d wager they outperform substantially. WeWork not being a good example, since it was obv a well crafted scam from the beginning.
  - fragmede 7y ago
    Any company that offers preferred stock and non-voting stock is participating in some form of "governance concessions", a number of which are hugely successful (eg Google's stock-split in 2012). WeWork went a step or two further than most with their LLC and holding company shenanigans before this announcement.
- acchow 7y ago
  "that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could" Except WeWork isn't a tech company.
impalallama 7y ago
So why does everyone so interested in WeWork's IPO evaluation? Non trying to be sassy just genuinely curious why articles like seems are so regularly posted.
- enraged_camel 7y ago
  WeWork is used by many startups and remote developers, and HN has plenty of those. In addition, it has irked a lot of techies that WeWork is claiming to be a technology company (they are actually a traditional real estate biz) and a lot of their valuation is based on that aura.
- cagenut 7y ago
  the same reason we obsess over cloudflare but ignore akamai and fastly. or obsess over tesla and ignore BYD. wework is familiar and accessible to people here.
- duxup 7y ago
  To some extent Uber is like watching a Unicorn car accident, you can't look away. It also is a good example of these dirty Unicorns that are not unlike Uber where folks for quite a while wonder "How can you be profitable and operate like that?" and we're all amazed the market keeps rewarding them ... and it seems like we're to the point where the market might not reward them.
  - jellicle 7y ago
    Wile E. Coyote has run off the edge of the cliff and yet his legs are still going and he isn't falling. But at some point he will stop, look down, look at the camera, and then fall a long, long way. We're just waiting for the look down.
buboard 7y ago
So they can claim to overshoot their target? The investors will be very pleased. OTOH this reeks of desperation to "go public", and drop the hot potato on clueless investors while they 're still clueless and the market is still hot. Sounds sinister tbh
jgalt212 7y ago
if $10B is real, that might be the end of Vision Fund II.
- mrnobody_67 7y ago
  Add in Brandless, Wag, and Doordash and a couple others... hard to see how giving Nuro $1b for self-driving delivery robots will return 40% annualized. Can anybody point to significant investments ($1b+) in their portfolio that will return 5x-10x?
  - twic 7y ago
    Sometimes i wonder if the whole Vision Fund is actually a CIA plot to bankrupt certain Middle East oil states.
bhupy 7y ago
Seems to be in line with Aswath Damodaran's valuation estimate. "From my perspective, this seems like an optimistic story, where WeWork generates pre-tax operating income of 10.07 billion on revenues of $80.5 billion in 2029, generating a 26.61% return on capital on intermediate capital investments. Allowing for a starting cost of capital of about 8%, the resulting value for the operating assets is about $29.5 billion, but before you decide to put all your money in WeWork, there are two barriers to overcome: Possibility of failure: The debt load that WeWork carries makes its susceptible to economic downturns and shocks in the real estate market, and the cost of capital, a going concern measure of risk, is incapable of capturing the risk of failure embedded in the business model. I will assume a 20% chance of failure in my valuation, and if it does occur, that the firm will have to sell its holdings for 60% of fair value. Debt load: As I noted in the last section, the company has accumulated a debt load, including lease commitments, of $23.8 billion. Adjusting for these, the resulting value of equity is $13.75 billion, and with my preliminary assessment of shares outstanding, translates into a value per share of about $26/share." Highly recommended read for those that haven't already: http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or-meltdown-in-motion.html http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or...
- duxup 7y ago
  >will have to sell its holdings for 60% of fair value. That makes sense, possibly in some cases if they sold now. WeWork is big so maybe it isn't relevant but I know folks in real estate in my area and they were a bit surprised at the prices paid for what became WeWork buildings. Not every purchase in the area, but there was buzz in that community about "Who else was bidding it up that high?" and they came to find out, nobody. WeWork just paid a lot more than anyone thought it was worth. Granted maybe WeWork can afford to do that here or there.
  - sgt101 7y ago
    There's a liquidity issue as well. The shareholders could get zeroed out because the debt could call in before the leases and freeholds can be sold. There is good reason to think this is what will happen : - transaction times for large property transactions are on the scale of months for prime property in good times - wework has distorted the market with private capital potentially misallocated given the value reduction since softbank invested - in many places that wework has invested there is significant growth in commercial property inventory; for example London. This is because the property boom in China has changed the cost of building large office buildings (builders have worked out how to throw up a 50 floor tower fast and cheap) and consequently many old 10 floor plots are now becoming 50 floor plots If wework comes under pressure their assets may not only be over valued, they may find that it takes too long to find any buyers at all. In which case the assets belong to the banks. (edited formatting)
laser 7y ago
As WeWork has raised $12.8 billion [1], that would be quite a devastating repricing. I would think they would just remain private at that price, but maybe they need the cash and no private investors will give it to them. [1] https://www.crunchbase.com/organization/wework/funding_rounds/funding_rounds_list#section-funding-rounds https://www.crunchbase.com/organization/wework/funding_round...
- benj111 7y ago
  I think they have $6bn in loans lined up contingent on selling $3bn worth of shares. So pulling out would put a hole in their expansion strategy. It may also be that they would be unable to get such an offer for $6bn again, bearing in mind the now much lower valuation. But then the vision fund has deep pockets, as do its investors so who knows.
LargeWu 7y ago
I know this has been covered before, but WeWork isn't really a tech company. They're a real estate company. They buy buildings and then rent space. And they certainly don't scale the same way tech companies do.
- blang 7y ago
  I think that's why the parent put "tech" in quotes.
  - LargeWu 7y ago
    I guess I was referring to the quote that was posted, which certainly seemed to lump WeWork in with tech IPO's.
    - filmgirlcw 7y ago
      Well, although many now understand WeWork isn’t a tech company (and some of us were saying this YEARS ago — I personally said this at least twice on CNBC as far back as 2014), WeWork raised money and did it’s IPO roadshow and achieved the valuation it has achieved by positioning itself as a tech company, even tho it is just a real estate company with slightly complicated owning/leasing structures. Soft Bank invested what if has invested, expecting to get the return it would get on a tech company — not real estate. The reckoning that is happening now is much deserved, but if WeWork got the benefit of being called a tech company when it was flying high (and it did — including here on HN), I’m not going to give the company or its investors an “out” now that it’s all falling apart. This was a decidedly non-tech company that convinced its investors it was tech. And now that the rouse is up, the bloodbath that follows begins in earnest.
      - roymurdock 7y ago
        investors don't really care what "tech" truly means in the classical sense (using/selling computers or apps as a central part of the business). investors care about what kind of return they can expect from a certain class of company. "Tech" has come to mean a company with high revenue/user growth, low marginal cost of production, big moats, not necessarily profitable, but on track to IPO and with large institutional/public demand for investment. WeWork is obviously not a tech company like Microsoft or Apple are tech companies and nobody is arguing or should really even care about that, investors surely don't. But it also fails to check some of the boxes of new class of "tech" companies and that is being reflected in the current valuation battle. or maybe the underwrites just really overshot the mark after SoftBank pressured them with its own high valuation estimate.
znpy 7y ago
> 10 B$ > low
jekoei9 7y ago
I think a big perception issue in the general public that the money people are chafing against after doing their homework is that WeWork isn’t a tech company. Economically they’re more like a b&m retailer, where the shelf space being leased is for workers, not mannequins and clothes. Their reach to individual pockets is orders of magnitude smaller. Big clients can abandon them as a supplier in a few weeks time to setup a new office. WeWork does not have the long term emotional buy-in potential like an Apple or Facebook. It’s a business to business business. Not going to hook a billion individual users on their gadgets and services. There’s a non-zero chance the property market implodes, and shifts to remote workers seem very likely to expand. Still need phones and software. Not downtown offices with cucumber water.
- danko 7y ago
  It's true there's a non-zero chance the property market implodes, but the shift to remote workers is exactly what WeWork is counting on. Many (even most) people chafe at working in their living space 100% of the time, and squatting in coffee shops and the like also has its limits. People generally need a work place that is separate from their living place, even if their work place is not the same work place as the rest of their company. Throw in the need for quiet places, conference rooms, whiteboards, etc, and before you know it...
  - twic 7y ago
    Is there any evidence from their S-1 or other publications, that this is actually their strategy? Or is this a narrative retrofitted on the message boards?
  - notyourday 7y ago
    This an an extremely unsexy long-term market that provides very solid returns in exchange for lots of work. That is why management companies have very low valuation even compared to REITs. It is a market where you hire Jamel and Jose who have been building supers for twenty years and who know what's on sale today in the Home Depo and what kind of light bulbs should be hoarded rather than Jack who will order stuff on Amazon because Jack will overpay by 220% by buying that stuff for just-in-time on Amazon and over a period of 10 years those mistakes are going to be a $100k difference in opex per location. A company that gives an engineer budget to deck out his desk is fundamentally incompatible with a slow and steady way of making money in real estate management.
cr0sh 7y ago
What should really be the shocking thing is that somehow, 10 billion is considered "low". I don't live in SV, and I'm just a software engineer making under 6 figures, but living comfortably all the same. I am ignorant about this "high finance" stuff - and honestly, I'm probably better for it; less stress and all. Not saying others shouldn't do it if that's what they like, just that I don't think it's for me. Still - it seems ridiculous to me that a company self-valued at 10 billion, that there is something wrong with that? Maybe it's that I don't understand the financial history of historical tech companies, but it "feels" to me that such companies had no where near such value? Part of the problem is that I can't think of such historical companies that were similar to WeWork or other "gig-style" companies - that were contemporary with, say, 1960s Fairchild or IBM? Those companies, and other similar companies of that era and into the 1980s (like Sun and SGI and Motorola and Intel, etc) - they were probably valued pretty highly (had they done such thing as an IPO - I don't think that was an available thing then, though - but they probably did have investors, and "ground-up" growth). But they actually created products - physical things you could touch - as well as software (depending on the company); they weren't just using or repurposing existing tech on a large scale to solve a problem via a form of contract labor. Maybe a better model that would have been contemporary to those companies would be larger-scale construction contractors of the era? Were they ever valued in a similar manner? To me - in my ignorance - it just seems like all of this exists to make a quick (overvalued) dollar and get out. I don't expect WeWork (or Lyft, Uber, etc) to be around in 20 years. We'll just continue to have this "churn" of companies, no loyalty or building of a base of customers that last ages and are almost "passed down" through generations. Think about a company like IBM - arguably, it dates back to the late 19th century, but even discounting that, it is a computing and software company that is close to 100 years old; will any of today's "well known" tech companies be able to weather the years like IBM has (albeit with ups and downs, and with scandals and such)? I can see Apple doing it - maybe. Perhaps Microsoft and probably Google. Amazon? I guess it could become akin to Sears or Montgomery Wards. Of course, no one probably thought of those older brands as having the staying power that they've shown, either - and there were plenty that one would have thought should have stayed around that didn't, and others that did that have imploded (ahem - Sears and Montgomery Wards - for instance). I don't know if I am making my point clear enough - other than to say that it feels like these "companies" only exist - or were created - as "get rich schemes" for their creators and owners - not because those involved are really in it to make a "real difference" in the world (whether that would be a good or bad thing is debatable). I guess I miss seeing purpose and organic growth, and a valuation in line with that, and heads or owners of such companies in it for a reason other than "getting rich and getting out".
brown9-2 7y ago
They were previously hoping to raise $10B from the IPO, how much are they hoping to raise now?
gigatexal 7y ago
Um... is Masayoshi Son reeling now that Softbank invested at a ~40B valuation?
adrianmonk 7y ago
To me, WeWork seems like one of those businesses whose success might be based on a novel but easily-duplicated idea. After they blaze the trail of providing a different approach to office space, is there a lot to stop competitors from doing the same thing? Maybe there are more, but I only see two advantages they have over competitors: name recognition and economies of scale. And since leasing space is a large expense for tenants, it's natural for people to shop around a bit, making it a natural area for competition (and driving down margins). WeWork's web site uses the word "revolutionary". Once the revolution has finished happening, what reason is there to believe that WeWork is going to own it? Obviously WeWork has a head start, but is there anything they've done that others can't do?
situational87 7y ago
This is getting comical. They keep intentionally leaking lower and lower numbers trying to gauge any level of interest. I feel like a scammer on the corner is getting increasingly desperate shouting lower numbers at me as I walk away. "No how about just $5 then and I'll read your palm!" People used to have shame. This is so weird.
1024core 7y ago
One economic downturn and WeWork is history. I wouldn't touch this one with a 10-foot pole.
- misiti3780 7y ago
  if it goes public, short it!
leshokunin 7y ago
This feels like death by IPO. They’ve signaled that both the public and private market aren’t interested. Now they have to choose to stay private and keep control, or go public and raise 80% less than initially planned, while giving away control. The best move (in hindsight) would have been not to try to IPO. Have there been other examples of companies getting gutted by their IPO efforts? (Another interpretation would be that they are a real estate company trying to pass for a tech company and everyone called their bluff).
ulfw 7y ago
Still too much for what it is. Shady real estate play with a shady CEO. Why are we even pretending this is tech?
nabdab 7y ago
“As low as” Isn’t it still tons higher than a fair market evaluation compared to other rental companies? I mean I get that they “own the word We” and branded themselves a tech company. But when you strip away those jokes, they are just a b2b rental company that’s bleeding money month after month. I feel like the real news is that rather than drop the IPO in the face of severe disillusion they(SoftBank) are actually trying to recoup some of their losses while cutting the company down, rather than comfortably pursuing the valuation that they previously seemed to push as being a reasonable possibility.
DebtDeflation 7y ago
And now Softbank is going to buy at least 25% of the shares issued in the IPO. Either they're true believers in the valuation (i.e., that $10-15B is a steal) or this is a last ditch attempt to salvage the IPO.
jillesvangurp 7y ago
WeWork has close to 300K members and they've been growing massively. I'm not sure how much they charge on average but lets assume it is at least around 300 dollars per month; probably more. So, that should generate up to 100M per month and well over a billion a year. They're reported revenues are actually closer to 2 billion. So, obviously they either make way more per user or I missed something here. Either way, this is apparently generating quite nice revenue. They have cost of course but it does not sound like a horrible business. They charge a premium to their users and from what I've seen in various locations in Berlin and SFO, they tend to cram in a lot of people in their locations and maximize the usage of the spaces they lease. So, I'd say it's safe to say that each We Work location ought to be profitable with some nice margins. From what I understand the reason they are burning cash is simply rapid growth. They are investing every penny they can get in more locations. Based on all of this. A valuation of 10B for a company that seems on track to grow to billions in profit per year sounds on the low side to me. Also, with that kind of revenue, they should increasingly be able to fund growth from their own revenues. Long term threats to WeWork's business exist of course. Fundamentally they don't have a lot of tech or intellectual property protecting them from competitors. Most of their competitive advantage simply comes from their scale and presumably optimized operations and access to capital. I'd say it's similar to the hotel business which is also dominated by big chains of hotels. So, long term you'd expect more competition to emerge and a race to the bottom in terms of prices and operational cost. E.g. the Hilton group owns hundreds of hotels world wide with probably tens of thousands of beds and seems roughly comparable to wework in terms of number of buildings and revenue. The only difference is of course that they've been around for very long whereas WeWork has existed less than a decade. Fundamentally, if they mature a bit there's no good reason why they should not be massively profitable even if they get a bit of competition; which they currently only have from much smaller companies.

190 points by aresant 7y ago

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

samnwa 7y ago
They recently raised funding at $47 billion though. So it's more than "just a report".
- mytailorisrich 7y ago
  Yes, Softbank invested at that valuation. That's their problem, really as that's a crazy valuation. For an IPO underwriters will look for a more reasonable number as they have to actually flog the shares to the market. If the IPO goes ahead at 10b valuation, Softbank will have to write off a massive amount and thus they are unsurprisingly fighting against it.
  - benj111 7y ago
    It may be a crazy valuation but it's legitimate, someone paid money at that valuation. House prices in X are crazy, but people will pay that, so that is a valuation. Yes eventually the buyers and sellers will have to balance out, starting from a price someone has actually paid seems entirely reasonable though. The IPO underwriters started off mentioning a $65bn valuation, most probably based on the $47bn previously paid.
    - mytailorisrich 7y ago
      One investor paid that price. That's the issue with illiquid assets that suddenly become liquid: What one person is willing to pay may not represent the market consensus. A house or a piece of art is a bit different because you always only need to find one buyer. But a company's shares traded on the open market are extremely liquid.
      - benj111 7y ago
        If I go to the stock exchange and buy one share of a company at double the going rate, then until another exchange occurs my price is the going price, and the 'value' of the company as doubled. I'm not saying its the answer, I personally find it unsatisfying, but it is an answer, and on some levels the only answer that matters.
        perl4ever 7y ago
        Why do you think your share determines the price of all the other shares? Is it special somehow? If nobody traded at all for a year, would that mean the company is worth zero, or that its worth is undefined?
        benj111 7y ago
        I have shares I havent traded in a while, if I go on to my account I will be shown the latest price along with a profit or loss. That latest price is based on what the last person actually paid, that's the only thing that makes it special. But don't forget that theres 2 sides to the market, it's the last price someone agreed to sell at, because that's what we are talking about, the crossover where buyers match sellers. Now if I decided to sell my shares based on that, would I be guaranteed to also get that price? No, there could be a flash crash, there could be results just announced, there could be any number of reasons to make the stock go up or down, or more precisely attract or scare away investors. In general though I would expect to get a figure close to the price that I saw, because theres not much that can fundamentally change in the few minutes between trades. On a stock that hasn't been traded in a year, the only thing that really changes is the error bar, the price isn't going to be within 0.1% of the last one, it's going to be within 100% or something. Having someone actually pay money for something really is the acid test. I can slap a price tag on something, but if no one buys it than is it really worth that? We can sit around coming to more or less reasonable valuations, but ultimately if Wework floats and trades at $100bn valuation, then no amount of armchair opinioneering is going to change that, people are putting their money where their mouth is, and as I seem to mention on every stock market thread, the best thing about the stock market is you can put your money where your mouth is.
john_moscow 7y ago
Those reports are used to gauge the public opinion. You "leak" that the valuation is going to be $XYZ and then watch the public comments, news reports et al to estimate how willing will the public be to buy in at this price.
- JMTQp8lwXL 7y ago
  Do you do a follow-up Twitter sentiment analysis, or do you really only care about the banker's commentary? Anyone on here, or CNBC, or Cramer's show is just the peanut gallery. We aren't the market makers.
JMTQp8lwXL 7y ago
If there are more intangibles than tangibles, there is more unknown than known, and it should be priced accordingly (e.g., lower).
- finkin1 7y ago
  You're probably right, which appears to be what's happening. In the end I think the market will decide what's low enough. I'm very curious to see what happens to the stock if/when it starts trading.
  - JMTQp8lwXL 7y ago
    Given all the negative public sentiment, my guess is the will work extra hard to get price discovery just right so it won't much at all on IPO day. As we're seeing, that likely means a significant decrease from We's most recent valuation.
pgwhalen 7y ago
The “reports” are just the bankers putting out offers essentially, and seeing how the (investing) public reacts. So on the one hand, they’re extremely real because they’re from the people who will eventually set the price, but on the other hand they’re extremely fake since not necessarily anyone has expressed an interest to transact at that price.

duxup 7y ago

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

kmfrk 7y ago

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

Basketb926 7y ago
https://en.wikipedia.org/wiki/OpenIPO https://en.wikipedia.org/wiki/OpenIPO "OpenIPO is a modified Dutch auction" "number of companies public including Morningstar, Interactive Brokers Group, Overstock.com, Ravenswood Winery, Clean Energy Fuels, Boston Beer Company" WeWork is experiencing this type of auction but strangely in the media instead of in communications between actual investors

echelon 7y ago

This is much different from $47 billion. They know that we've caught on to the sham, and now the investors just want liquidity so they can dump this mess onto others. They're hoping some will see this as a bargain so they can still get an exit. Don't trust this.

shosko 7y ago

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

mises 7y ago
> Some see its value as culture, others see it as real estate. Can you point me to more information on the "culture" point of view? I have trouble seeing what kind of culture we work has, let alone how a culture can be monetized. But what's special about its "culture", any way? Real estate is at least valuable; for a while, I wondered if it would turn into the world's weirdest REIT. What future is it creating?
- michaelt 7y ago
  According to their S-1 [1] We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success. [...] We start by looking at space differently: as a place to bring people together, build community and enhance productivity. Philosophically, we believe in bringing comfort and happiness to the workplace [...] Nine years ago, we had a mission to create a world where people work to make a life, not just a living. We believed that if we created a community that helped people live life with purpose, we could have a meaningful impact on the world. [...] Each of our spaces is designed to make our members feel welcome and at home, and to encourage a sense of belonging. We believe that individuals are more productive when they are able to express their full and authentic selves, so we aspire to be as inclusive as possible. As a grumpy cynic personally I don't really go for that stuff, but they've put it in the prospectus so presumably they think other people do. [1] https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm https://www.sec.gov/Archives/edgar/data/1533523/000119312519...
  - mises 7y ago

JMTQp8lwXL 7y ago

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

mrweasel 7y ago
Regus, which I recall correctly is valued at around 4.5b USD, so WeWork should be less than that, but not proportionally so, given their much better branding.
- nugget 7y ago
  I'm more skeptical of WeWork's culture and valuation than most, but I will give them credit for creating the best quality product in the market. When I need conference or office space in various cities I don't compare WeWork to Regus, I just find the nearest WeWork space and book there. Our portfolio companies do the same. For people who travel often, there is a subtle network effect that provides value. Regus is irrelevant in this sense, and irrelevance can be particularly deadly for valuation. Perhaps Regus can re-invest into their brand to become competitive - and I hope they do, because more competition would be healthy.
- JMTQp8lwXL 7y ago
  WeWork could have a substantially different portfolio of real estate assets. I think looking at Regus isn't a bad idea, but then consider it in the context of what WeWork has (though, I am not privy to knowing how many, if any, of WeWork's real estate assets are "paid off").
  - ivalm 7y ago
    Most of them are rented not owned by weworks. WeWorks is in the business of subleasing.

cj 7y ago

Just to get a sense of IPO pricing incentives: Who benefits when an IPO like this is underpriced? And who benefits when an IPO is overpriced? Is there anyone incentivized to price an IPO accurately?

benj111 7y ago
Its a market, the IPO is always priced accurately in as far as buyers match sellers. Obviously the bankers wanting to conduct the IPO, want to give the IPOee a high valuation figure, but the scale is normally lower than this. Existing stock holders will obviously want a high valuation, and want to be given a high valuation by the bankers. In other words, rowing back on the price isnt that unusual, the scale here is vastly different though.
ganitarashid 7y ago
Insiders cashing out is more important than anything apparently
- deleted 7y ago
  [deleted]
- cj 7y ago
  Insiders can't cash out until after the lock up period, after which the price should have stabilized to whatever the market think it's worth, right? (So the IPO price isn't as important as the price the market settled on a few months later, by that logic) Or is that thinking too simplistic?
  - dymk 7y ago
    Early investors are not necessarily subject to lockouts
  - oarsinsync 7y ago
    Unfortunately, yes. Softbank has taken out loans secured with Uber stock during the lock up period. If the value of Uber tanks, Softbank retains the money, and the bank takes the stock. Softbank has effectively sold their stock ahead of time, removing any downside risk. On the flip side, if Uber stock goes up, Softbank can sell their Uber stock (post-lockup) at a profit, pay back the loan, and enjoy all the upside reward. I'm reasonably sure I've read reports that they've taken out secured loans on their Wework stock too. Effectively sold the downside risk before IPO. Also, depending on what category of investor you are, you have liquidation preferences. You may be the one providing the stock that's being sold at IPO.

brosinante 7y ago

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

templatewe 7y ago

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

Ilverin 7y ago
Quote from Matt Levine: https://www.bloomberg.com/opinion/articles/2019-09-09/we-might-not-be-working https://www.bloomberg.com/opinion/articles/2019-09-09/we-mig... Well, I just got through saying that there’s not really any reward for being pessimistic and right about valuation when you are pitching an IPO. Your optimistic competitors will get the mandate, and then spend some time walking the company back ... On the other hand it is a repeat game and there are occasionally penalties for getting it wrong: ... it will be rough for Morgan Stanley if winning the biggest IPO prize [Uber] of the unicorn era loses it the biggest IPO prize of all time [Saudi Aramco]
- dehrmann 7y ago
  > Saudi Aramco Complete aside, but the ~second largest oil producing country is selling part of its state-owned oil company. Yes, they're trying to diversify so they're not just a petrostate, but this should be a red flag for the oil industry.
dawhizkid 7y ago
I wouldn’t look too deep into it. Private valuations are mostly meaningless. This goes for everyone.
linuxftw 7y ago
> But this is an 80% discount in a span of 6 weeks Discount is the word they want you to hear in your head. The valuations are all imaginary. By setting such a high previous valuation, people now look at the current valuation in the context of that, instead of what it should be: $0.

RyanAF7 7y ago

A generation of Enrons. Good god, do people so quickly forget?

hendzen 7y ago

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

bsbechtel 7y ago
It's always a good idea to be skeptical of someone making claims you need lots of capital to rapidly scale your business when that person is selling capital for a living.
- benj111 7y ago
  You do need lots of capital to scale rapidly (I don't sell capital for a living). If you're a company and want to expand you either use your profits, or borrow money, the more money you borrow, the more widget machines you can buy. The open question is how big you should grow before demonstrating profitability.
  - jppope 7y ago
    well we're all sitting around here talking about WeWork and not the other million co-working spaces... so in way their plan worked.
    - linuxftw 7y ago
      I only hear about wework hear, via the media. If this was a penny stock, we'd call it a pump and dump scam. I know tech people all over the US and Europe and literally no one has ever spoken the word 'wework' outloud to me.
  - airstrike 7y ago
    I'd make the follow small modification to the parent's quote: I's always a good idea to be skeptical of someone making claims you should raise lots of capital to rapidly scale your business today or in the near term, as opposed to other strategic alternatives when that person is selling capital for a living.

benj111 7y ago

The Unicorns wander out of the enchanted forest, and turn out to be just horses with a stick stuck to their head. Theres been much hand wringing about the sky high valuations, and its not really surprise when push comes to shove, those valuations don't play out. How a $65 billion potential valuation (or $47bn 'actual') becomes a $10bn float will be a write up I look forward to though.

askafriend 7y ago
A couple of bad companies don't characterize an entire market. Have you forgotten about the successes already? Slack, Zoom, Pinterest, PagerDuty, Okta, Cloudflare, Twilio, Shopify, Twitter, LinkedIn, Facebook, Roku, Elastic, etc etc. They all IPO'd this decade and are enormously successful and have justified their valuations. This is a Softbank-specific problem. Not a problem with all companies.
- benj111 7y ago
  I'm not saying they're bad companies, just that they've been blown up to mythical proportions, Unicorns don't exist, their tears won't cure all ailments, they don't fart rainbows, and Wework is probably more reasonably valued as a property company, not a tech company. Facebook fell after it's IPO by quite a lot btw.

lordnacho 7y ago

Is anyone informed about the consequences of such a down-round? I haven't kept an eye on their incoming investments, but you'd think there might be some unhappy investors there with various clauses in their terms? This has probably been the most criticised IPO I've heard of in recent times. Interesting that the market is actually not allowing them to sail right through on their own terms, it's as if all the ridicule actually makes people think about whether to buy it.

mosdl 7y ago
Imagine all the people who exercised options...
jannotti 7y ago
I've been trying understand this too. If you have a liquidation preference on your preferred shares that says you get your money out before others, does that just go away in an IPO? If it applies, how? Because it's not like there's a buyer who is putting up the entire market cap in cash. But if it goes away, that's kind of an amazing loss of value for those holders. Do they have to agree to the IPO? (Maybe usually they do, but here Adam has super voting rights?)
- thedudeabides5 7y ago
  Lots of people rambling their opinions here, but agree with this thread that having some actual information on what the consequences of such a down round would be, given the liquidity preference in their venture rounds. Crunchbase says $12.8bn of prior investment. Wouldn't that mean with a 1x liquidation pref that all the employees (including the CEO) would get wiped out?
  - thedudeabides5 7y ago
    https://www.crunchbase.com/organization/wework/funding_rounds/funding_rounds_list https://www.crunchbase.com/organization/wework/funding_round...
  - marcinzm 7y ago

roymurdock 7y ago

Matt Levine as usual called how this would play out. He said we work would start dropping the weird voting/control privileges ("corporate governance concessions") that founders have enjoyed on recent "tech" IPOs. He also said investors wouldn't care much and this latest news confirms that. His conclusion: "But now WeWork seems to be facing the traditional tradeoff: Stay private, keep control, but lose access to billions of dollars of funding, or go public, raise unlimited money, and have to act normal. If it does either of those things, that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could stay private without giving up the benefits of being public, or they could go public without taking on the burdens of being public. Now they might have to make hard choices again."

duxup 7y ago
I wonder how much of this is about timing and perception of potential public investors? Early enough and maybe you don't get as much money, but the public money might be more willing to take a chance on who knows what might happen. Too late and enough people have pointed out that the emperor has no clothes and people start to belive / realize it.
rajacombinator 7y ago
Any studies out there of returns on companies that have made “governance concessions” as you describe them? I’d wager they outperform substantially. WeWork not being a good example, since it was obv a well crafted scam from the beginning.
- fragmede 7y ago
  Any company that offers preferred stock and non-voting stock is participating in some form of "governance concessions", a number of which are hugely successful (eg Google's stock-split in 2012). WeWork went a step or two further than most with their LLC and holding company shenanigans before this announcement.
acchow 7y ago
"that will mark a sort of end of an era. At the height of the unicorn boom, big tech companies could" Except WeWork isn't a tech company.

impalallama 7y ago

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

enraged_camel 7y ago
WeWork is used by many startups and remote developers, and HN has plenty of those. In addition, it has irked a lot of techies that WeWork is claiming to be a technology company (they are actually a traditional real estate biz) and a lot of their valuation is based on that aura.
cagenut 7y ago
the same reason we obsess over cloudflare but ignore akamai and fastly. or obsess over tesla and ignore BYD. wework is familiar and accessible to people here.
duxup 7y ago
To some extent Uber is like watching a Unicorn car accident, you can't look away. It also is a good example of these dirty Unicorns that are not unlike Uber where folks for quite a while wonder "How can you be profitable and operate like that?" and we're all amazed the market keeps rewarding them ... and it seems like we're to the point where the market might not reward them.
- jellicle 7y ago
  Wile E. Coyote has run off the edge of the cliff and yet his legs are still going and he isn't falling. But at some point he will stop, look down, look at the camera, and then fall a long, long way. We're just waiting for the look down.

buboard 7y ago

So they can claim to overshoot their target? The investors will be very pleased. OTOH this reeks of desperation to "go public", and drop the hot potato on clueless investors while they 're still clueless and the market is still hot. Sounds sinister tbh

jgalt212 7y ago

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

mrnobody_67 7y ago
Add in Brandless, Wag, and Doordash and a couple others... hard to see how giving Nuro $1b for self-driving delivery robots will return 40% annualized. Can anybody point to significant investments ($1b+) in their portfolio that will return 5x-10x?
- twic 7y ago
  Sometimes i wonder if the whole Vision Fund is actually a CIA plot to bankrupt certain Middle East oil states.

bhupy 7y ago

Seems to be in line with Aswath Damodaran's valuation estimate. "From my perspective, this seems like an optimistic story, where WeWork generates pre-tax operating income of 10.07 billion on revenues of $80.5 billion in 2029, generating a 26.61% return on capital on intermediate capital investments. Allowing for a starting cost of capital of about 8%, the resulting value for the operating assets is about $29.5 billion, but before you decide to put all your money in WeWork, there are two barriers to overcome: Possibility of failure: The debt load that WeWork carries makes its susceptible to economic downturns and shocks in the real estate market, and the cost of capital, a going concern measure of risk, is incapable of capturing the risk of failure embedded in the business model. I will assume a 20% chance of failure in my valuation, and if it does occur, that the firm will have to sell its holdings for 60% of fair value. Debt load: As I noted in the last section, the company has accumulated a debt load, including lease commitments, of $23.8 billion. Adjusting for these, the resulting value of equity is $13.75 billion, and with my preliminary assessment of shares outstanding, translates into a value per share of about $26/share." Highly recommended read for those that haven't already: http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or-meltdown-in-motion.html http://aswathdamodaran.blogspot.com/2019/09/runaway-story-or...

duxup 7y ago
>will have to sell its holdings for 60% of fair value. That makes sense, possibly in some cases if they sold now. WeWork is big so maybe it isn't relevant but I know folks in real estate in my area and they were a bit surprised at the prices paid for what became WeWork buildings. Not every purchase in the area, but there was buzz in that community about "Who else was bidding it up that high?" and they came to find out, nobody. WeWork just paid a lot more than anyone thought it was worth. Granted maybe WeWork can afford to do that here or there.
- sgt101 7y ago
  There's a liquidity issue as well. The shareholders could get zeroed out because the debt could call in before the leases and freeholds can be sold. There is good reason to think this is what will happen : - transaction times for large property transactions are on the scale of months for prime property in good times - wework has distorted the market with private capital potentially misallocated given the value reduction since softbank invested - in many places that wework has invested there is significant growth in commercial property inventory; for example London. This is because the property boom in China has changed the cost of building large office buildings (builders have worked out how to throw up a 50 floor tower fast and cheap) and consequently many old 10 floor plots are now becoming 50 floor plots If wework comes under pressure their assets may not only be over valued, they may find that it takes too long to find any buyers at all. In which case the assets belong to the banks. (edited formatting)

laser 7y ago

As WeWork has raised $12.8 billion [1], that would be quite a devastating repricing. I would think they would just remain private at that price, but maybe they need the cash and no private investors will give it to them. [1] https://www.crunchbase.com/organization/wework/funding_rounds/funding_rounds_list#section-funding-rounds https://www.crunchbase.com/organization/wework/funding_round...

benj111 7y ago
I think they have $6bn in loans lined up contingent on selling $3bn worth of shares. So pulling out would put a hole in their expansion strategy. It may also be that they would be unable to get such an offer for $6bn again, bearing in mind the now much lower valuation. But then the vision fund has deep pockets, as do its investors so who knows.

LargeWu 7y ago

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

blang 7y ago
I think that's why the parent put "tech" in quotes.
- LargeWu 7y ago
  I guess I was referring to the quote that was posted, which certainly seemed to lump WeWork in with tech IPO's.
  - filmgirlcw 7y ago
    Well, although many now understand WeWork isn’t a tech company (and some of us were saying this YEARS ago — I personally said this at least twice on CNBC as far back as 2014), WeWork raised money and did it’s IPO roadshow and achieved the valuation it has achieved by positioning itself as a tech company, even tho it is just a real estate company with slightly complicated owning/leasing structures. Soft Bank invested what if has invested, expecting to get the return it would get on a tech company — not real estate. The reckoning that is happening now is much deserved, but if WeWork got the benefit of being called a tech company when it was flying high (and it did — including here on HN), I’m not going to give the company or its investors an “out” now that it’s all falling apart. This was a decidedly non-tech company that convinced its investors it was tech. And now that the rouse is up, the bloodbath that follows begins in earnest.
    - roymurdock 7y ago
      investors don't really care what "tech" truly means in the classical sense (using/selling computers or apps as a central part of the business). investors care about what kind of return they can expect from a certain class of company. "Tech" has come to mean a company with high revenue/user growth, low marginal cost of production, big moats, not necessarily profitable, but on track to IPO and with large institutional/public demand for investment. WeWork is obviously not a tech company like Microsoft or Apple are tech companies and nobody is arguing or should really even care about that, investors surely don't. But it also fails to check some of the boxes of new class of "tech" companies and that is being reflected in the current valuation battle. or maybe the underwrites just really overshot the mark after SoftBank pressured them with its own high valuation estimate.

znpy 7y ago

> 10 B$ > low

jekoei9 7y ago

I think a big perception issue in the general public that the money people are chafing against after doing their homework is that WeWork isn’t a tech company. Economically they’re more like a b&m retailer, where the shelf space being leased is for workers, not mannequins and clothes. Their reach to individual pockets is orders of magnitude smaller. Big clients can abandon them as a supplier in a few weeks time to setup a new office. WeWork does not have the long term emotional buy-in potential like an Apple or Facebook. It’s a business to business business. Not going to hook a billion individual users on their gadgets and services. There’s a non-zero chance the property market implodes, and shifts to remote workers seem very likely to expand. Still need phones and software. Not downtown offices with cucumber water.

danko 7y ago
It's true there's a non-zero chance the property market implodes, but the shift to remote workers is exactly what WeWork is counting on. Many (even most) people chafe at working in their living space 100% of the time, and squatting in coffee shops and the like also has its limits. People generally need a work place that is separate from their living place, even if their work place is not the same work place as the rest of their company. Throw in the need for quiet places, conference rooms, whiteboards, etc, and before you know it...
- twic 7y ago
  Is there any evidence from their S-1 or other publications, that this is actually their strategy? Or is this a narrative retrofitted on the message boards?
- notyourday 7y ago
  This an an extremely unsexy long-term market that provides very solid returns in exchange for lots of work. That is why management companies have very low valuation even compared to REITs. It is a market where you hire Jamel and Jose who have been building supers for twenty years and who know what's on sale today in the Home Depo and what kind of light bulbs should be hoarded rather than Jack who will order stuff on Amazon because Jack will overpay by 220% by buying that stuff for just-in-time on Amazon and over a period of 10 years those mistakes are going to be a $100k difference in opex per location. A company that gives an engineer budget to deck out his desk is fundamentally incompatible with a slow and steady way of making money in real estate management.

cr0sh 7y ago

What should really be the shocking thing is that somehow, 10 billion is considered "low". I don't live in SV, and I'm just a software engineer making under 6 figures, but living comfortably all the same. I am ignorant about this "high finance" stuff - and honestly, I'm probably better for it; less stress and all. Not saying others shouldn't do it if that's what they like, just that I don't think it's for me. Still - it seems ridiculous to me that a company self-valued at 10 billion, that there is something wrong with that? Maybe it's that I don't understand the financial history of historical tech companies, but it "feels" to me that such companies had no where near such value? Part of the problem is that I can't think of such historical companies that were similar to WeWork or other "gig-style" companies - that were contemporary with, say, 1960s Fairchild or IBM? Those companies, and other similar companies of that era and into the 1980s (like Sun and SGI and Motorola and Intel, etc) - they were probably valued pretty highly (had they done such thing as an IPO - I don't think that was an available thing then, though - but they probably did have investors, and "ground-up" growth). But they actually created products - physical things you could touch - as well as software (depending on the company); they weren't just using or repurposing existing tech on a large scale to solve a problem via a form of contract labor. Maybe a better model that would have been contemporary to those companies would be larger-scale construction contractors of the era? Were they ever valued in a similar manner? To me - in my ignorance - it just seems like all of this exists to make a quick (overvalued) dollar and get out. I don't expect WeWork (or Lyft, Uber, etc) to be around in 20 years. We'll just continue to have this "churn" of companies, no loyalty or building of a base of customers that last ages and are almost "passed down" through generations. Think about a company like IBM - arguably, it dates back to the late 19th century, but even discounting that, it is a computing and software company that is close to 100 years old; will any of today's "well known" tech companies be able to weather the years like IBM has (albeit with ups and downs, and with scandals and such)? I can see Apple doing it - maybe. Perhaps Microsoft and probably Google. Amazon? I guess it could become akin to Sears or Montgomery Wards. Of course, no one probably thought of those older brands as having the staying power that they've shown, either - and there were plenty that one would have thought should have stayed around that didn't, and others that did that have imploded (ahem - Sears and Montgomery Wards - for instance). I don't know if I am making my point clear enough - other than to say that it feels like these "companies" only exist - or were created - as "get rich schemes" for their creators and owners - not because those involved are really in it to make a "real difference" in the world (whether that would be a good or bad thing is debatable). I guess I miss seeing purpose and organic growth, and a valuation in line with that, and heads or owners of such companies in it for a reason other than "getting rich and getting out".

brown9-2 7y ago

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

gigatexal 7y ago

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

adrianmonk 7y ago

To me, WeWork seems like one of those businesses whose success might be based on a novel but easily-duplicated idea. After they blaze the trail of providing a different approach to office space, is there a lot to stop competitors from doing the same thing? Maybe there are more, but I only see two advantages they have over competitors: name recognition and economies of scale. And since leasing space is a large expense for tenants, it's natural for people to shop around a bit, making it a natural area for competition (and driving down margins). WeWork's web site uses the word "revolutionary". Once the revolution has finished happening, what reason is there to believe that WeWork is going to own it? Obviously WeWork has a head start, but is there anything they've done that others can't do?

situational87 7y ago

This is getting comical. They keep intentionally leaking lower and lower numbers trying to gauge any level of interest. I feel like a scammer on the corner is getting increasingly desperate shouting lower numbers at me as I walk away. "No how about just $5 then and I'll read your palm!" People used to have shame. This is so weird.

1024core 7y ago

One economic downturn and WeWork is history. I wouldn't touch this one with a 10-foot pole.

misiti3780 7y ago
if it goes public, short it!

leshokunin 7y ago

This feels like death by IPO. They’ve signaled that both the public and private market aren’t interested. Now they have to choose to stay private and keep control, or go public and raise 80% less than initially planned, while giving away control. The best move (in hindsight) would have been not to try to IPO. Have there been other examples of companies getting gutted by their IPO efforts? (Another interpretation would be that they are a real estate company trying to pass for a tech company and everyone called their bluff).

ulfw 7y ago

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

nabdab 7y ago

“As low as” Isn’t it still tons higher than a fair market evaluation compared to other rental companies? I mean I get that they “own the word We” and branded themselves a tech company. But when you strip away those jokes, they are just a b2b rental company that’s bleeding money month after month. I feel like the real news is that rather than drop the IPO in the face of severe disillusion they(SoftBank) are actually trying to recoup some of their losses while cutting the company down, rather than comfortably pursuing the valuation that they previously seemed to push as being a reasonable possibility.

DebtDeflation 7y ago

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

jillesvangurp 7y ago

WeWork has close to 300K members and they've been growing massively. I'm not sure how much they charge on average but lets assume it is at least around 300 dollars per month; probably more. So, that should generate up to 100M per month and well over a billion a year. They're reported revenues are actually closer to 2 billion. So, obviously they either make way more per user or I missed something here. Either way, this is apparently generating quite nice revenue. They have cost of course but it does not sound like a horrible business. They charge a premium to their users and from what I've seen in various locations in Berlin and SFO, they tend to cram in a lot of people in their locations and maximize the usage of the spaces they lease. So, I'd say it's safe to say that each We Work location ought to be profitable with some nice margins. From what I understand the reason they are burning cash is simply rapid growth. They are investing every penny they can get in more locations. Based on all of this. A valuation of 10B for a company that seems on track to grow to billions in profit per year sounds on the low side to me. Also, with that kind of revenue, they should increasingly be able to fund growth from their own revenues. Long term threats to WeWork's business exist of course. Fundamentally they don't have a lot of tech or intellectual property protecting them from competitors. Most of their competitive advantage simply comes from their scale and presumably optimized operations and access to capital. I'd say it's similar to the hotel business which is also dominated by big chains of hotels. So, long term you'd expect more competition to emerge and a race to the bottom in terms of prices and operational cost. E.g. the Hilton group owns hundreds of hotels world wide with probably tens of thousands of beds and seems roughly comparable to wework in terms of number of buildings and revenue. The only difference is of course that they've been around for very long whereas WeWork has existed less than a decade. Fundamentally, if they mature a bit there's no good reason why they should not be massively profitable even if they get a bit of competition; which they currently only have from much smaller companies.