WeWork Is the Most Ridiculous IPO of 2019
This Forbes article detailing WeWork's IPO is eye opening.
Some highlights:
Using a 8.2% discount rate vs. 3.7% competitor discount rate for their lease obligations, severely understating the liabilities
Dual class shares CEO gets 100% of voting rights. WeWork is also his own personal bank, lending him money at below 1% interest rates
The CEO has a personal line of credit of $500M from the underwriters of the deal. The credit is backed by WeWork share and has a margin call provision, which means that if the stock price declines to a certain point, the banks can claim and sell some of CEO's stock
The entire half dozen pages or so of investor risk that highlights Neumann’s shady behavior is already enough to convince me. The financials and the rest of it certainly don’t help either, but man this situation with the founder is insane.
Don’t worry, there will be a enough stupid ass money managers throwing money at this thing. Then they’ll get burned within a couple months.
Peloton is another loser as well. These severely Money-losing IPOs are becoming a joke
I haven’t had a chance to read the Peloton S-1 yet, looking forward to it
I see Peloton working out only because it's a status symbol product. You'll have hotels and high end gyms as the biggest consumer of this product. It's basically a portable Equinox. Of course, if we do end up having a recession, the company is screwed
SoulCycle and Equinox just announced a Peloton competitor. I'm sure others will follow. They merely proved the business model works and there are very limited barriers to enter.
Peloton is a total fad in my view, and it certainly won't hit whatever outrageous growth assumptions they have.
Remains to be seen. That just means Planet Fitness, Town Sports, etc would naturally gravitate towards Peloton bc why would they purchase a competitor's product?
Also, Equinox and Soulcycle has that whole Trump fiasco. Look what that did to Papa John's. A lot of headwinds coming for that company
I'm more optimistic on Peloton - if you look at the S-1 a big chunk of last half's loss was due to a stock buyback from employees in a secondary offering. They are still unprofitable, but closer to a -10% margin than -20%. Secondly, their unit economics are much stronger and very asset (and associated liability)-light. If you take their customer acquisition cost from the S-1, they are paying ~$1,220 per customer who buys a buck and signs up for sub. Each bike's gross margin is ~$1,161, so their acquisition costs are almost entirely paid for up front. That means each month of subscription is running at a gross margin of ~90%+ (yes they have variable costs in paying the instructors, but 1 instructor and classroom space for a class they can scale to 10s of 1000s means negligible COGs).
The big issue for them is entry of competitors - there is not much of a "moat" here. That will reduce their margins over time, but there are plenty of examples of high gross margin, high acquisition cost industries (any SaaS business) that can support multiple successful companies. There are also plenty of examples of industries with low barriers to entry where one company simply did it better. When the iPod launched, there were network effect reasons to get one vs. any other MP3 player - smartphones weren't a thing yet. However, Apple's product was simply much better, and so they won. I have no idea if Peloton will be the same, but with a 5-year head start and established infrastructure & branding there's no reason to think they can't.
You make an excellent point re: Peloton. With the possible exception of exercise itself as something to be engaged in regularly by regular people, ALL individual forms of exercise are fads. In 1985 you probably could have (and someone probably did) take a racquetball equipment company public at a valuation that contemplated the entire human population eventually playing racquetball every day forever.
There is absolutely zero economic moat. CBRE is getting into the space now with Hana, and they could crush WeWork because they have some of the best real estate data and dealmakers in the entire market.
Peloton will give them a run for their money...their cover page looks like a DJ festival lineup (GS is obviously the headliner)...
"We are in the business of selling happiness"
If you weren't aware they are also a tech, media, etc, company
It's absurd. How's Uber?
Still torching billions of dollars per quarter?
at least when Uber gets self-driving cars it will be profitable. WeWork has no moonshot moment where they suddenly will have cracked the real estate leasing market, like someone else already mentioned, they have zero barriers to entry and CBRE is starting to do the same thing.
Self driving cars will destroy uber. Their only barrier to entry is the need to build up millions of drivers.
With self driving cars it will be incredibly easy to build a large fleet. Just takes money. The app itself is easy to replicate.
That being said demand for Uber’s are jncreasing at a high rate. If they hit some kind of bottleneck like running out of drivers it might give uber some pricing power and profits before driverless cars.
But like I said driverless cars will destroy Uber. It will be an oversupplied bankrupt industry like the airlines were for years.
You know when you read a book about 1980s PE and think... "Fuck that was insane, I wish I was around for easy money."
This insane tech bubble and bullshit valuations are the same... I'm excited to see the fallout and terribly irresponsible VCs eat shit.
The VCs have already made money on these - its the public investors who will get burned
Look @ the shitty IRR of "growth" stage VCs specifically. They are going to have a hell of a time raising their next funds. :)
And a lot of the time, the last VCs in did not/do not make money.
What are the people who are buying into this IPO thinking?? The only potential upside is that they somehow unlock profitability in the future as they mature but the financials don't show them approaching that at all and their business model would need to be completely revised.
Remember those quaint old days when making money still mattered? When there were dumb ideas being batted around - like profits and cashflow? What were we thinking right? This time it's different! It's users and growth - at any price! I swear we'll find a way to make money eventually. We're partying like it's 1999.
I can think of no better indicator of an overpriced company than the CEO of WeWork selling his equity in private rounds, and using the cash to buy buildings that he then leases back to WeWork (since they always over-pay).
It's like he's double-shorting his own company! Brilliant!
He doesn't even need to sell his equity, WeWork loans him the money at sub 1% rates. He then uses the cash to buy the buildings and leases back to WeWork at probably a 5-10% cap rate.
Arbitrage!
classic example of hating the player, and not the game.
I have a question for those that dabble in the HF side of things. Isn't it likely WeWork will get sued into oblivion post-IPO? I see far more legitimate companies without overt conflicts of interest get sued all the time, but this seems like a recipe for (legitimate) lawsuits on behalf of public shareholders?
It's going to be interesting to see how expensive it will get to short WeWork. With such a large market cap I am curious what percentage of its float will be sold short.
It should be reasonable. They won’t float a tiny amount of stock so the borrow shouldn’t go crazy.
The info is disclosed so kinda hard to have a case - that's my gut
bull market bro
Dot com bubble two, Quran hai tu hubahu
It's not ridiculous, it's a "state of consciousness. A generation of interconnected, emotionally intelligent entrepreneurs."
When a first year analyst screens CAPIQ for multi-channel retailers:
MD: "Why'd you include this in the comps"
Analyst: They are "a direct-to-consumer, multi-channel retail company that facilitates a seamless customer journey."
MD: "But you also included them on our logistics comps"
Analyst: They are also "a logistics company that provides high-touch delivery"
I wouldn’t be shocked if this ipo fails. Ive talked to very few people who believe in the concept.
Plus all the conflicts on interests.
If there's "very few people", then how did it raise billions of $$$?
deleted
A big chunk of it was SoftBank. Public markets also trade differently than private. And this will have some of the issues present with uber as a lot already owned it.
very few people could also be very rich, very stupid people
see: softbank
The shocking thing is all the mega funds that plowed money into this bitch. And what's with the Softbank Vision Fund? It's like they are in every shitty mega IPO deal out there? Are they intentionally setting fire to large piles of cash to keep warm?
hey man it gets chilly in Japan
Flipping garbage companies can be a model.
You can own a fleet of self-driving cars, but where the fuck are you gonna get customers/riders?
Uber already has the riders, they can just phase out the drivers. But I just read the other day that the automatic braking feature in some cars doesn't work properly (i.e. the car stops despite no object). This leads me to believe that driverless cars are gonna be a while
What's funny is that most of WeWork's tenants are other tech startups or companies looking for temp space.
When the tech bubble bursts and/or the economy officially enters a recession, WeWork and it's founder will be gone faster than a fart in the wind. Except the founder has already looted the company.
What else is amazing is the lack of corporate governance in general. It's like money managers enjoy getting screwed without Vaseline. Anyone watch "The Profit" on CNBC? The douche doles out advice to small businesses, but his own business is failing. Camping World stock is down 80% since it's 2016 IPO. I would be so pissed given how strongly the broader market has performed since then. But guess what? Lemonis controls a majority of the votes, despite not owning a majority of the company.
One share should equal one vote, plain and simple. Its not surprising that companies with multiple classes of stock tend to underperform. But I digress.
"gone faster than a fart in the wind" - hahahaha quote-worthy
Yes, so am I the only one thinking that WeWork is the real estate company equivalent of a gigantic subprime MBS? Because the entire model is about giving room to a bunch of tenants that will fail in droves, because that's how the enterpreneurial field is, especially tech.
Do people even understand what kind of business they are putting their money into? Or it's just a bull market? Because that one is over.
I'm curious where you got the title of your article from...
https://www.forbes.com/sites/greatspeculations/2019/08/27/wework-is-the…
Investors heading to the pre-recession WeWork board meeting like...
“The music is about to stop and we are going to be left holding the biggest bag of odorous excrements ever assembled in the history of capitalism”
Thought some of you may like this read: https://www.bloomberg.com/opinion/articles/2019-08-06/good-bankers-know…</a">Good bankers know lots of things
Talks a bit about the deal the WeWork CEO has and what banks hope to get out of this relationship.
Nice find.
https://www.wsj.com/articles/wework-parent-weighs-slashing-its-valuatio…
"WeWork parent weighs slashing its valuation roughly in half to around $20 billion amid IPO skepticism, say people familiar with the matter"
And they all fall down..
Yep I saw that. And if you look up above I commented a week or two ago that WeWork would be a failed ipo and not get done. Now he had to run to his sugar daddy cuz public markets don’t want the turd.
Kind of surprised this isn't getting more attention here... maybe because everyone already knew this was going to be the case.
It is fascinating. To your point, I saw a tweet earlier that put it simply enough (ironically it was from the Chief Revenue Officer of Tinder - @jmj):
“WeWork cutting their IPO valuation in half to $20B is amazing.
Imagine walking into your office and telling employees that your company is now worth 50% less than it was yesterday.
Will be an incredible MBA case study one day.”
It is amazing. I would give anything to see softbank’s internal docs on WeWork that supported $40 billion. We’ve all gotten creative with valuations at one time or another, but as the wsj article notes there isn’t even a revenue multiple among WeWork’s comps that’s more than half of their last round’s valuation. Nor does the company appear to have even a medium term path to being cf+.
It's pretty clear they are just throwing money around and hoping it sticks somewhere. He's had a few big winners, so you can expect law of averages some losers as well
Seems like they amassed quite the portfolio of assets, some trophy assets....
Any sense on what happens if a company like this were to fail? What happens to those properties?
What WeWork thinks they are valued (left) vs. what they are valued (right)
Can we stop talking crap about 2019 IPOs?
Lyft is LEGENDARY
Uber is MAGNIFICENT
Beyond Meat is GROUNDBREAKING
Slack is ICONIC
WeWork
Pinterest is INSPIRING
Slack is in big trouble, as well. Microsoft Teams is the equivalent for free.
Talk about a fall from grace..
https://www.wsj.com/articles/neumann-expected-to-step-down-as-we-ceo-11…
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