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> “If I showed you their cash-flow statement, you would not compare it to a real-estate company,” said Henry Ellenbogen, a portfolio manager at T. Rowe Price. “
by 7Figures2Commas 12y ago
> “If I showed you their cash-flow statement, you would not compare it to a real-estate company,” said Henry Ellenbogen, a portfolio manager at T. Rowe Price. “You’d compare it to a brand or tech company—maybe Chipotle or Uber.”
> WeWork said its December revenue puts it on an about $150 million annual revenue run rate. It also said the month’s annualized operating income puts its valuation at roughly 100 times income. It expects to grow significantly in years ahead, which would lower that ratio. Landlords typically trade between 18 times and 20 times earnings, according to Jed Reagan, an analyst at real estate consultants Green Street Advisors.
> Price depends on location. In the company’s Financial District headquarters, it charges $400 a month for a desk and $1,400 a month for a small two-person office, well above the area’s rate for such space.
> The business is a risky one in which its costs, fees paid to landlords, are fixed, but its revenues from startups and established businesses can fall quickly when the economy slows.
> “The small-to-medium-size businesses, they get particularly impacted in a recession,” said Jon Halpern, who ran shared office space firm HQ Global Workplaces in the early 2000s.
> HQ grew rapidly in the run-up to the dot-com bust. But in the recession that followed, its value plummeted. It ultimately sold itself to Regus.
Let me guess: this time it's different?
- infecto 12y agoI have a hard time understanding why you would not compare this to real-estate. Its certainly not a brand or tech play. If the market slowed it would certainly take a hit. Most of these places have monthly contracts and its highly tied to how well the economy is doing. With that said, I really do appreciate the services these kinds of places offer. While they charge above market rate for sq.ft., they make up for it in services. I do not have to worry about anything within the office and can simply work. They usually have amazing internet, some free coffee/drinks and cater towards keeping me being productive. They offer nice community benefits as well.
- interstitial 12y agoThe funny thing is during the 2004-2008 bubble, you were not allowed to compare real estate to real estate.
- mbesto 12y ago> Landlords typically trade between 18 times and 20 times earnings This is my favorite part. So WeWork is "trading" at 33x on projected annual earnings and yet these contracts can easily be broken. When it all falls down (it will, but probably less dramatically than we've seen in the past) this type of business will be hit the hardest. Not having fixed cost structures are typically why so many tech startups can be valued so highly.
- pbreit 12y agoYou mean "33x on projected annual revenues"! Huge difference and far worse.
- pdq 12y ago> You’d compare it to a brand or tech company—maybe Chipotle or Uber. I get the Chipotle analogy, but Uber definitely does not make sense. Uber neither owns nor leases the cars, so they don't need the massive capital. The drivers provide that. And Uber scales pretty easily: hire a bunch of contract drivers in your new city, and then open it up. Whereas WeWork has to find office space, sign up for multi-year leases, re-architect and re-decorate it, and then can get monthly memberships. If you break it down, WeWork is "24 Hour Fitness for Coworking" (or insert your favorite gym name).
- pbreit 12y agoIn fairness, the comparison was to "cash flow statements". But even that comparison seems a stretch considering Uber's cash flow is tracking to $10b/$2b (gross/net).