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WeWork Weighs Slashing Valuation by More Than Half Amid IPO Skepticism (wsj.com) 47

Posted by msmash from the market-correction dept.
WeWork's parent company is weighing a dramatic reduction in its valuation [alternative source] as it aims to go public while facing widespread skepticism over its business model and corporate governance, WSJ reported Thursday, citing people familiar with the matter. From the report: We is considering putting a price tag on its IPO that would value it somewhere in the $20 billion range, potentially at the low end, these people said, less than half of the $47 billion mark where it last raised private capital. Adam Neumann, We's co-founder and chief executive, flew to Tokyo last week to meet one of the company's biggest investors, SoftBank Group Chief Executive Masayoshi Son, and members of his team, the people said. There, they discussed the possibility of an additional infusion of capital, multiple people briefed on the meeting said.
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WeWork Weighs Slashing Valuation by More Than Half Amid IPO Skepticism More

WeWork Weighs Slashing Valuation by More Than Half Amid IPO Skepticism

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  • I know they have a successful model for subleasing/renting out space... just curious from people that work at companies that utilize WeWork spaces what are the top things you or your companies like about them?

    On the business side these would be the potential barriers to entry for competitors.

    • For me the main problem with the business model is that there are no barriers to entry in the market. Essentially anyone who owns any sort of a property could set up and become a competitor in short order. It's one of these ideas that, if it ever took off, would still leave very limited growth potential for investors.

      • Not to say that there arenâ(TM)t already competitors that have been around longer, including some that make money, but there are plenty of barriers to entry. Itâ(TM)s not that easy launching and running a brick and mortar location. Getting long term leases in the city core is not easy, you need a lot of money. Itâ(TM)s also hard to actually be profitable, which WeWork hasnâ(TM)t been able to figure out. Itâ(TM)s hard to get investment and loans when you are losing money. To open as

        • Itâ(TM)s also hard to actually be profitable, which WeWork hasnâ(TM)t been able to figure out.

          For a normal tech company, the solution is "scale". As you get bigger, revenue grows way faster than expenses, because software is easy to replicate. Even for hardware, much of the cost in NRE, not unit production.

          But WeWork is not a tech company. There is little advantage to scale. As revenues increase, expenses increase proportionately. If they aren't making money now, they likely never will.

          Uber is in the same situation. They are burning cash, with no plausible path to profit.

          • Uber is in the same situation. They are burning cash, with no plausible path to profit.

            Good.

          • Re: (Score:2)

            by Cederic ( 9623 )

            WeWork is not a tech company. There is little advantage to scale. As revenues increase, expenses increase proportionately

            That's not strictly true. There are fixed and variable costs, and as you scale the relative impact of the fixed costs falls.

      • Re: (Score:2)

        by Junta ( 36770 )

        For localized startups, this is true.

        For distributed teams with 'chunks' that desire office space, WeWork would have an advantage over disparate local affairs. However this would seem to be more rare and IWG pretty much has that consistent reach across many places with a more solid business model at lower prices and without a currently-known corrupt CEO.

    • That the CEO owns some of the buildings [bizjournals.com] that WeWorks leases out is one of the reasons why the valuation is being discounted.

    • Re:What makes WeWork special? (Score:5, Insightful)

      by mobby_6kl ( 668092 ) on Thursday September 05, 2019 @10:11AM (#59161636)

      Nothing. I've heard they do some hipsterish events in their spaces like bringing in local artisanal bagel makers but mostly it just seems like hype by trying to position itself as a tech unicorn. Meanwhile their major competitor IWG has several times more members, locations, and revenue (not to mention profit). https://www.vox.com/recode/201... [vox.com]

    • There's an article somewhere I can't find the link to, but long story short it has Silicon Valley creditors who are trying to sell out as it is one of those overleveraged shell corporations where the CEO did stuff like register the trademark himself and then take a loan to buy it from himself with company money. It's largest competitors own more real estate and aren't valued near as much.
    • Comment removed based on user account deletion

      • Re: (Score:2)

        by Pascoea ( 968200 )

        Dammit, I guess my mod points expired. So here's a virtual "+1 Funny".

        That's a very professional way to state that the business model is to bilk investors and fuck your workers over in the process of getting filthy dirty rich.

    • Re: (Score:2)

      by RonVNX ( 55322 )

      The corrupt founder/CEO amount of money they lose is what makes them special.

    • No one seems to want to give you a real answer... I think their leasing model (basically turning your real estate costs into a variable cost instead of fixed) is the biggest advantage they have. That's not necessarily a barrier to entry though. The hipstery events and the beer taps or what not are... nice, but that's not a competitive moat. Their other alleged advantage is letting you network cross-company, which may be true but again reproducible as long as someone copies their model. Their only "real" adv

    • Re: (Score:2)

      by AuMatar ( 183847 )

      They actually don't- they lose money every quarter. If they had a successful model they wouldn't be.

    • Re:What makes WeWork special? (Score:5, Insightful)

      by aaarrrgggh ( 9205 ) on Thursday September 05, 2019 @11:37AM (#59162028)

      There are a few if I am being generous.
      -Time to market for a new lease. The conventional way, it might take 4-6 months to find a space and close the lease, then 6-12 months for design and construction. If you lease a space that is “ready to move in” it might just be two months for the minor modifications and extra furniture. So, absolute minimum of about 6 months, but more realistically 12-18 months. You can be in a WeWork inside 3 months with similar standards.
      -Flexible Space. Most leases are traditionally 7+ years due to all the lead time; this forces you to plan for an unknown future, and often about 20% growth. By being able to take on additional space at any time, you can constantly right-size, and the same for giving back space.
      -Easy end of term. It is amazing how much office space is occupied at less than 20%, because continuing with the current lease is cheaper than renegotiating and renovating your existing space, and due to long lease terms. Being able to “get out cheap” can be a huge benefit to corporate users.

      Economically, the model can work with a long-term master lease, and shorter term sub-leases. The problem is that you need those master leases to be significantly below market value for it to work, so you can pass on the flexibility. WeWork has been leading up space at a premium, and doing premium build-outs. In some markets, they are essentially trying to absorb all excess space to make themselves the best option. That doesn’t work well going into a potential recession.

      • -Time to market for a new lease. The conventional way, it might take 4-6 months to find a space and close the lease, then 6-12 months for design and construction. If you lease a space that is “ready to move in” it might just be two months for the minor modifications and extra furniture. So, absolute minimum of about 6 months, but more realistically 12-18 months. You can be in a WeWork inside 3 months with similar standards. -Flexible Space. Most leases are traditionally 7+ years due to all the l

        • It depends on your size; my numbers were for a corporate tenant or someone with more than 50 people. You will almost never find a space that is “ready to go.” When we were starting out (4 people with a plan for 16), finding the right space took about two weeks. We looked at about 8, and ended up with the “best value” for ourselves. (Still there 13 years later, so I guess it worked.) While I do use LoopNet to look at options, it is generally much less effective than a broker

      • I moved my company into new digs in January. It took us 2 months to find a place, but once we did - we were in and operating in 4 weeks. Lease execution was 3 days, build-out was 2 weeks, actual move too the rest. Yeah, we're not huge (a couple dozen people, 6,000 square feet of space), but even so it's really fast.

        • Re: (Score:2)

          by jbengt ( 874751 )
          That makes more sense than the scenario of th GPs.
          However, I've designed plenty of office space project for larger companies wanting to build out space to suit, and it can easily take 4 to 6 months to find a space and close a lease plus 6 to 12 months for design and construction. But it has nothing to do with WeWork's customers.
          • Correct - if you can afford WeWork, you can afford to do it right, you've already reached the "I need office/warehouse space that is fairly secure, not atrocious, and I can put a dozen desks in" stage. In other words, you KNOW you need to expand or grow in 4-6 months, and can make it happen appropriately.

    • It's a commercial REIT that *loses* money. That's really "special" in the short-bus sense.

    • Because some VCs said so. The entire thing is stupid, along with Tesla, Beyond Meat, et al. These companies won't even be around in 10 years. They are losing tons of money, and they aren't Amazon (before someone comes out and says "what about Amazon???")

    • Re: (Score:2)

      by cusco ( 717999 )

      The primary thing that my employer **dislikes** about WeWork is their general level of competence, or really their lack of same. The don't even seem to be able to hand out a floor plan with North designated on it, have no concept of the difference between "public space" and "secure space", and when remodeling their space to a customer's needs are unable to even follow a material list. We have one site where they installed the wrong doors and we have been waiting 7 months so far to get them replaced, and a

    • Re: (Score:1)

      by vipvop ( 34876 )

      I wouldn't call it a successful model, based on their massive losses

    • They don't make any PROFIT and all good news is based on potential future outlooks.
      WeWork looses money for every user they rent out space to.
      For user's it's great as it is just a cheap work space.
      Although it's crowded, noise, annoying shared meeting rooms and second rate coffee.
      Other existing companies give way better service.
      Investors are blinded by their greed on cashing in in the future and keep on throwing money at this company with it's megalomanic CEO.

    • Re: (Score:2)

      by kriston ( 7886 )

      These offices are a seriously bad idea if you are trying to sell into the government space, especially the cleared sector.

      The walls are floor-to-ceiling glass. You can hear everyone on the floor and they can hear you. The "soundproof" phone booths aren't.

      They also can't seem to keep consumables stocked (creamer, bathroom soap and paper towels).

      The fruit-infused water is great, though.

  • The text [alternative source] appears, but alternative source is actually provided.
  • Pop. Pop. Pop. Here goes the bubble.

    • Re: (Score:2)

      by Luthair ( 847766 )
      Maybe for venture capitalists, but the fact that they're having trouble justifying their high valuation would suggest otherwise and that the market at large isn't buying into a bubble.

    • Like investing in alibaba, they made a bunch of shell companies and the IPO is for idiots. The actual investors and partner/real owners have pieces of the pie much closer to the assets and running business. The shares will be for a company that holds interest in another company that holds interest in... The business is shells and insider manipulations throughout and there are literally dozens of virtual workspace competitors in every major city in the world with their exact business model or better varia

  • WeWork has ups and downs (Score:3)

    by hsmith ( 818216 ) on Thursday September 05, 2019 @10:51AM (#59161804)
    We use WeWork as an office space and have for almost 2 years. It isn't cheap, lets be honest. it costs ~$200/sqft. Compare that to an average $35/sqft for typical office space. But ,you get a slew of amenities. The fact you can do month to month when any other lease will be at least 1y locked and and 3-5y mandatory locked in as a general rule. That isn't congruent to companies getting off the ground. So, WeWork does offer great flexibility - but at a slightly marked up cost. We'd never sign a 3y lease, it would be way too expensive and we'd never be able to gauge what we need in 3y. The trade off with WeWork, at least for us, is worth it. Next year we will be looking for some private office space.

    • Re: (Score:2)

      by Nidi62 ( 1525137 )

      We use WeWork as an office space and have for almost 2 years. It isn't cheap, lets be honest. it costs ~$200/sqft. Compare that to an average $35/sqft for typical office space. But ,you get a slew of amenities.

      The fact you can do month to month when any other lease will be at least 1y locked and and 3-5y mandatory locked in as a general rule. That isn't congruent to companies getting off the ground.

      I'm going to assume your quoted numbers are per month. 2 years at $200/sqft comes out to $4800 per sq foot for that period. $35/sqft over a 3 year period is $1260. Even locked into a 5yr lease you are at $2100/sqft. That must have been a slew of damn good amenities to pay out 4x what you could have been paying.

      • Business sqft is yearly per sqft. So, WeWork is $200 and regular is $35. But, once you count in meeting spaces, kitchen, etc that $200/sqft isnâ(TM)t terrible. With $35/sqft you have a 5y lease and have to build out the office. So, the costs are hidden. We have some massive companies in ours. BAH and Hylton almost have an entire floor.
    • Yes, co-working has a model that is very similar to hotels, which are great in some scenarios. Why would someone invest in this, compared to a completely underwater hotel chain about to go bankrupt, beats me. I guess I do wonder if investors are higher on the food chain of bankruptcy than landlords, but I think Chase also agreed to give them a big loan. I guess we are going to see if the open market is crazy enough to bail softbank out of this.

    • For a startup there are cheaper options, but looking at those costs (and assuming it doesn’t include conference rooms and other common areas), it isn’t too bad— maybe $1.5-2k per employee?

      When we started out, we leased 3,500 square feet at about $30/SF ($42 today for equivalent). We fitted out three private offices, one conference room, and 12 cubicles with a furniture cost of about $24k, and about $3k in cabling and power. In the first three months we only had the four founders and no e

    • Many companies are afraid of signing a long lease. If you flame out before the lease expires, well - that's why you incorporate and only sign the lease as the corporation, not an individual. If you need to move because you've grown so much - that's a good thing, and eating a little cost by subleasing (you DID negotiate in a sublease, didn't you?) is immaterial. I personally prefer to keep fixed costs down (lease) and allow them to grow as the company grows, rather than paying out lots for flexibility tha

  • WeWork is the only choice (Score:4, Funny)

    by Drunkulus ( 920976 ) on Thursday September 05, 2019 @12:33PM (#59162248)
    They and they alone understand that no startup can succeed without office space that looks like a daycare center. They have bright colors, playful plastic furniture, and stuffed animals. If that's not worth $47 billion, I don't know what is.

    • Re: (Score:2)

      by Nidi62 ( 1525137 )

      They and they alone understand that no startup can succeed without office space that looks like a daycare center. They have bright colors, playful plastic furniture, and stuffed animals. If that's not worth $47 billion, I don't know what is.

      Don't forget the cool stairs.

  • WeWork's business model is built on a house of cards. They lease office space at a premium to startup companies. But just as soon as a startup company gets successful, it is going to want to expand to a larger office space and, at the same time, cut its leasing expenses. The companies that stay are the ones that fail to grow. They soon run out of money and go bankrupt. So your best customers leave and your other customers have high turn over rates.

    Look at their balance sheet. Look at their financials. Th

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