WeWork: The Bull(ish) CaseSubscribe
I’m working on a mammoth multi-part Google post and WeWork ties in nicely with the overall theme.
(To be clear, I have no opinion on WeWork as an investment - and I have zero knowledge of real estate - but I saw this thread and thought I could add value)
My partner Bruce Dunlevie once asked "what could go right?" This is the defining attitude needed in VC investing. When they work .... Wow. - Bill Gurley
WeWork certainly seems bubbly (or even fraudulent):
The CEO is making millions renting property to his own company, the primary backer has the dubious distinction of losing the most money in history - in the last tech bubble no less - and we’re overdue for a recession that would hit CRE particularly hard.
Indeed, to assess WeWork by conventional metrics is to miss the point, according to [Chief Executive Officer Adam] Neumann. WeWork isn’t really a real estate company. It’s a state of consciousness, he argues, a generation of interconnected emotionally intelligent entrepreneurs.
Addinator pointed out WeWork’s use of “community adjusted EBITDA,” which made me chuckle - what’s a good multiple on “consciousness adjusted EBITDA?”- and it is cause for concern...*
But it’s not all bad.
Revenue growth is up and to the right, WW has successfully embraced the enterprise, bringing on blue chip clients including Microsoft, IBM, and Amazon, and Adam Neumann’s access to capital appears limitless.
Let’s also not forget that EBITDA is not a Generally Accepted Accounting Principle - the term was popularized by a genius (John Malone) who wanted to maximize leverage and minimize net income to fund acquisitions in the fast growing cable industry using pre tax cash flow.
What if we’re at an inflection point in real estate?
The shit’s chess it ain’t checkers! - Denzel Washington, Training Day
WeWork is well positioned to exploit a (literal) land grab situation, using their rent arbitrage model as a trojan horse, analogous to what Amazon did with books to takeover e-commerce.
Interestingly, many lenders are already overexposed to WeWork - apparently WW is the largest corporate office occupier in NYC? - what if, through savvy financial maneuvering - and Neumann has access to some extremely sophisticated financiers through Softbank - WW manages to become the only game in town?
Leases are currently structured individually through special purpose vehicles, preventing any one bad loan from bringing down the house, and who knows what goes on behind the scenes.
Expansion to adjacent sectors is already underway, with co-living, a gym, and even a school appearing under the newly rebranded “The We Company” (awful, awful name) umbrella.
For people who don’t like WeWork as a product, they now offer WeWaaS (WeWork-as-a-Service :) ), providing commercial remodeling services (a $1tt industry? Huh?) and “space management” software to the enterprise.
Still, none of this is “innovation” per se, so why would anyone be excited?
Invention is a lot like surfing; you have to catch the wave at the right time - Ray Kurzweil
The Internet of Things (IoT) revolution never really took hold, did it?
I don’t know about you, but I’m still waiting for my smart-salt-shaker to ping Amazon when it’s running low, and for the autonomous delivery drone to show up jusssssst before I notice it needs a refill.
A version of this is on the way I’m told, it’s just that the “cost per computation” has been prohibitively high, and early investors had the timing all wrong.
WeWork seems to think the time is now.
"Basically, every object will have the potential to be a computer,” adds David Fano, WeWork’s chief growth officer, who is overseeing development of this new technology. “We are looking at, what does that world look like when the office is this highly connected, intelligent thing?”
And, IMHO anyways, WeWork is taking the right approach, giving users a platform to behave how they want, and letting the system learn with each interaction.
Acquisitions like Euclid - I know people in this space - underscore their commitment to this strategy.
Taken in the context of an information services play, a bet on WeWork is a bet that they can:
1. Get to x scale without going bankrupt, where x provides the necessary data (the timing)
2. They can capture that data (the technology)
3. Monetize that data (the economics)
Assuming they can pull it off, maybe they prove that people in WeWork offices are x% more productive, and therefore charge y% more per square foot.
Maybe they become the ultimate AI-powered interior designer, optimizing space across the enterprise globally.
Still, a LOT that has to go right, what about downside protection?
SoftBanking on the Future
WeWork’s shenanigans might not play in the public markets, but Masa Son and Co. appear ready, willing, and able to extend private market runway indefinitely.
Softbank has become something of a “Berkshire for startups,” providing access to liquidity while still allowing founders to operate (mostly) independently.
So if you don’t like WeWork on its own, what are your thoughts on it as one piece of a larger real estate puzzle:
Perhaps knowledge gained from WeWork helps inform better building design at Katerra…
Which makes WeWork spaces more attractive…
Which makes property more valuable on OpenDoor...
Which makes it easier to get mortgage loans through SOFI...
Which makes property easier to sell through Compass…
Which drives demand for Katerra’s construction software...
and round and round we go...
How about an AirBnB + WeWork merger?
AirBnB on its own will never have access to spatial intelligence, and Benchmark is a significant stakeholder in both...
Or is there no hope whatsoever?
Is The We Company (shudder) just a giant ponzi scheme?
Is Adam Neumann a huckster?
Is Masa Son just another false prophet?
What do you guys/gals think?