Future of WeWork?

isa2130953's picture
Rank: Neanderthal | 2,704

There are a lot of conflicting views on this but every other day I see a post about WeWorks massive debt.

I also saw a post of a girl on LinkedIn that was offered a position, and then it was stripped away from her because they wanted her to sign a contract saying all future start up rights belong to them, even if she is no longer with them. (I am aware a lot of large companies do this but their's was beyond avg.)

A lot of people say the culture is extremely toxic, (gotta drink the kool-aid and day drink at work/screw around) and they have been rapidly expanding.

Ironically I work out of the WeWork Gas Tower and I like it a lot, but from the corporate stand point I have to say I am curious on where the company will go.

What do you guys think?

Comments (50)

Jul 17, 2019

0

    • 2
Jul 17, 2019

I'll keep that in mind lol

    • 1
Jul 17, 2019

I want to say they r gonna go to the crapper, but who knows how things are gonna change. Their debt is massive though for sure.....

I wonder how a recession would impact them. I believe all of their properties are rented

    • 1
Jul 17, 2019

Good point. The price they set is totally dependent on how many people they can charge to get a margin on top of the rent. A lot of people who use WeWork are self employed, so working here is not a necessity. Probably a good think for them to think about if they havent already

Jul 17, 2019

I feel like the long term viability of the company is dependent on transitioning to a asset heavy balance sheet. The issue they have is they need a roller coaster economy to continue to have high rent arbitrage. The vast majority of their recent growth are in high rent contracts squeezing their arbitrage. The difference is their business model doesn't scale like an Amazon or other operations arbitrage company can. When you rely on excess supply in an industry where supply is being severly outstripped by demand from end users and capital you are in trouble. From what I understand is their goal is the shore up their WACC by taking a huge debt position prior to their IPO, to me I am not sure this is going to work.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

    • 2
Jul 17, 2019

I agree. If demand falls they either have to charge more and reestablish themselves, or get paper thin margins which will not last a long time.

Plus a lot of people are trying to duplicate this type of business right now. If they can't fix their issues I am sure someone else will swoop in and do it for them

Most Helpful
Jul 17, 2019

Forgetting the debt load for a moment, because that poses a significant issue, as does the rental burden. The underlying question is where do they go from here. While it's nice to see that they are creating a coworking space, the issue is that they aren't backed by anything substantial. I'm trying to where I read it recently, but they are looking to turn themselves into landlords and, effectively, rent the space to the WeWork. The biggest problem they have is the lack of ability to mitigate the operating cost issues. If it takes 18 months to fill a coworking space to full capacity and there are amounts of significant time and capital spent in renovating the space for use, you have to wonder how the company is able to manage its expectations. Let's say it takes 6 months to finish all of the renovations necessary to build out the office, and the first leases aren't signed until 2 months after renovations are finished. you're talking 8 months with zero cash flow for a given property and another 14 months to get the space to full capacity. Even if the breakeven is at roughly the 12-month mark after renovations are completed (and no, I don't know where the actual breakeven is here, it's just an assumption for argument's sake), you're still talking 18 months of losses. At least by owning the building and not just acting as a middle-man leasing agent, they can generate both stable incomes from longer-term tenants to offset the losses generated by the co-working space until they reach breakeven. At that point though, the company the only way the company will survive is by purchasing real estate and transition itself from a Rental-Space-as-a-Service operation to a more traditional REIT/CRE firm, which begs the question of why WeWork is valued as high as it is. CBRE, which has its own flexible space group, is only at ~$20B Market Cap, owns significant amounts of real assets, and is the largest CRE company in the world, while We Work's valuation is at $47B. The math doesn't add up.

Adding to what @heister said, it's not just a matter of price arbitrage, but economic stability. If we enter an "official" recession (and let's not have that debate on that because we're been in a recessionary environment for the last few years, to begin with. Hell, I'm sure there are people who can argue we haven't gotten out of the recession caused by the tech crash in 2000 due to the creation of artificial bubbles), the question becomes how viable is their business model. I expect people to rent less coworking space on longer-term contracts, only use it when necessary and shift the burden to remote working wherever possible. I don't see things ending well for them.

Jul 17, 2019

Exactly. I mentioned the recession because every day in my office I see that 90% of the people who go to WeWork are business owners. This is a luxury and not a necessity. Assuming that WeWork's customer base is more self employed, or remote working individuals who do not NEED this service, this will be the first expense they cut when times get tough.

If they do not have enough individuals to pay rent they will either have to suffer with paper thin margins, try to rebrand themselves as more luxurious with much higher prices, or close certain locations if the demand is not there. Not to mention that they building was never an asset so all cash spent on the lease goes in the trash.

    • 1
Jul 17, 2019

Definitely not a necessity. I don't see it doing well in the long run because of their business model (which is a shame because their actual locations are great.)

Also, I know many people that think their work environment is toxic. Their Glassdoor reviews are awful

Jul 17, 2019

I don't pretend to know a ton about VC but if this business was pitched to me I would have run away.

Their business model is absolutely terrible. It is also a lot less simple than it can be, not sure why anyone thought it was a good idea. I think it's success is built on a lie and it will come crashing down in a few years.

Jul 17, 2019

Yeah I definitely find it unnecessarily complicated. Those complications are what make it worse for the future too

Jul 17, 2019

I see them having very little avenues for expansion branching off of what they do now, and think that wework will eventually die, someone will take their place and do it slightly better but still die, and this cycle will continue. I find their core business model as a whole being very weak, and when they are breathing off of leverage at their current size, I think questions within the company need to be raised.

Jul 17, 2019

I am really surprised that not more people are talking about it. Although it is popping up here and there they are trekking down a very bad track IMO

Jul 17, 2019

I think Masayoshi Son is going to lose the Saudis (and others) alot of money when this new tech bubble collapses.

    • 1
Jul 17, 2019

That and if Venezuela manages to pick themselves up and do something with their gas/oil

Jul 18, 2019
BobTheBaker:

I think Masayoshi Son is going to lose the Saudis (and others) alot of money when this new tech bubble collapses.

Let's hope MBS doesn't behead him.

Jul 17, 2019

The future of WeWork is bleak. Just look at Regus' bankruptcy in 2002 or 2003. When a downturn occurs they are going to be facing big challenges.

    • 2
Jul 18, 2019

nothing has changed my view since the last time this was brought up: https://www.wallstreetoasis.com/forums/wework-the-...
bulletpoints: CEO is a charlatan, they have no obvious path to profitability, and they have too much debt

for those reasons, I am out

    • 1
Jul 18, 2019

Love the Mark Cuban reference. I use it all the time lol

Jul 18, 2019

it's good if a once night stand tries to get more serious

  1. you were a dead fish
  2. your apartment is unkempt
  3. you post WAYYY too many selfies
  4. the hedges need trimming

and for those reasons, I am out

    • 1
Jul 18, 2019

Haven't looked into the numbers, but my initial thought is that they really don't have any moat at all. I could be wrong about that, but I mean the concept is very basic. I guess they may have the first to market thing going, but I'm not sure how helpful that will be down the road.

Jul 18, 2019

They aren't even first to market, not by a long shot. What they did do well was reshape what a sublease office was, they made it "cool" by under utilizing a huge amount of their available sqft into common spaces. Which to be fair still technically generates rent but it isn't as high value as the private offices. As for a moat, you don't actually need that in most businesses that aren't IP or advanced processes based. Real estate is real estate is real estate.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jul 18, 2019

That makes sense, this isn't really my forte.

I'm staring at some of their financials right now via an article (not a deep dive by any means) and it doesn't look pretty. If you remove whatever gain they realized from what I'm assuming is the sale of an asset in the $300m range, even worse. Marketing spend ~3x YoY while occupancy and more importantly avg revenue per member dropped as well. ~60% of their locations look to be outside of U.S. while global slowdown looms, pretty late in the cycle for that. At least their "community adjusted EBITDA" is way up.*

*Don't hold any of the above against me pls if incorrect, just skimmed.

Jul 18, 2019

I don't believe they are first to market but with their PR they are the one that everyone thinks of first. Unfortunately I don't think that's gonna last among their other problems

    • 1
Funniest
Jul 18, 2019

A good case study highlighting autism in the VC community.

Jul 18, 2019
m_1:

A good case study highlighting autism in the VC community.

nearly fell out of my chair, thank you sir

Jul 18, 2019

I am doing God's work

Jul 18, 2019

Naw, at least Rain Man knew his numbers.

Jul 18, 2019

I will say the concept is actually really viable, it is just the wework model isn't really sustainable. There is a difference and it comes down to capital discipline, which wework appears to lack all together.

Follow the shit your fellow monkeys say @shitWSOsays

Life is hard, it's even harder when you're stupid - John Wayne

Jul 18, 2019

I'm reading about this "community adjusted EBITDA" of theirs...they deserve an award for this.

For those not privy: Subtracts not only interest, taxes, depreciation and amortization, but also basic expenses like marketing, general and administrative, and development and design costs.

Effect:
-$250m Adj EBITDA Q418
$144m Community Adjusted EBITDA Q418

    • 2
Jul 18, 2019

You have to love all the random EBITDA metrics out there. I personally like to just look at EBE (earnings before everything) to get a good idea of the profits of a company.

    • 3
Jul 18, 2019

Yeah man, just make sure when you're modeling WeWork you use WWAAP (We Work Accepted Accounting Principles)

If anyone is down to form a company and pepper some S1's out let me know

    • 1
Jul 18, 2019

Levering a balance sheet that is already inherently levered given the business model. This will go swimmingly.

    • 2
Jul 18, 2019

CEO has cashed out $700M ahead of IPO. Shows his thinking..

https://www.wsj.com/articles/wework-co-founder-has...

Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career.

    • 2
Jul 18, 2019

Was just about to post this... I think this speaks for itself. Lol what a fraud

Jul 18, 2019

Great move by him. I can't believe they've raised so much money. Red flags all over this business, and has been for some time.

Jul 18, 2019

For real though, there are tons of startups/fast growing companies that have raised insane amounts of money lately where the founders are brilliant at raising money. You have to give management, especially founder(s) credit for that here. Being able to effectively separate VCs from their money is a real skill.

Jul 20, 2019

I have nothing left to say about wework other than LOL.

Jul 21, 2019

.

    • 1
Jul 21, 2019

Can confirm extremely toxic work culture in Corp

    • 1
Jul 22, 2019

I work at the Gas Tower also and am pretty sure their revenue doesn't cover their rent. If not, it only barely does.

Jul 22, 2019
Comment
Aug 2, 2019