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

 

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

 

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

 
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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.

 

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

 

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.

 

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.

 

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!

 

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"

 

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.

 
Armhoo1:
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.

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.

Never discuss with idiots, first they drag you at their level, then they beat you with experience.
 

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.

 

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.”

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.
 

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+.

 

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

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.
 

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