We work will have to actually get into the Real Estate game to be able to make any money.
"WeWork is an American real estate company that provides shared workspaces for technology startups, and services for other enterprises. Founded in 2010, it is headquartered in New York City"
If you have been following the We work story as closely as I have, or at all, you know by now what a rollercoaster ride the whole experience has been. A Company once hailed as a bright spot in this new "rent what you need" economy is now being held up by most journalists as a cautionary tale, a Unicorn filled with nothing but hopes and dreams. This whole media storm surrounding the firm isn't without merit though, mistakes were made.
Wall Street loved the company till it didn't. Some Analysts initially seemed to give the Shared Office space operator a big thumbs up while others questioned some of the goings and coming of the firm. From some of the company's governance issues, to its side deals with Co-Founder and CEO, Adam Neumann.
Strange relationship with Adam
On Jan. 16, 2019, The Wall Street Journal's Eliot Brown published an article detailing a strange relationship Mr. Neumann seems to have with the company he started and runs. The CEO seems to operate as a sort of Landlord for the firm: He has, according to the Journal personally purchased several properties only to lease them back to the company for rental income. A relationship that seems to exist outside the overview of any independent body or investors.
It was also reported by CNBC that the Co-Founder and CEO, who is also the largest shareholder of the firm with 65% ownership stake, also sold the "We" brand to the company for $5.9 million in stock. Compensation he later relinquished as scrutiny started to build around the transaction.
Broken business model
Others straight up didn't buy the idea of a $40 billion + valuation for a company burning through cash at such an alarming rate, $904.6 million on $1.5 billion of revenue in the six months ending June 30 2019, with no end insight.
The firm hopes to raise approximately $1 billion in the public markets. An amount that will heavily depend on Wall Street's appetite for what WeWork has to offer when the stock debuts at the end of September.
Softbank's "We" problem
Some of the company's original investors are starting to get a bit jittery though, with all the bad press the firm has received since it filed to go public. There have been many questions and concerns raised causing the company to slash its valuation by half to around $20 billion ahead of its IPO.
Softbank, WeWork's largest shareholder, owning roughly 114 million pre-IPO shares has also voiced some concerns. With reports of the Japanese fund seeking to have WeWork's offering delayed or scrapped entirely.
Not so bad?
Looking at the firm's IPO filing, I had some questions about the overall business model.
Although, I believe that there is still a sustainable business there, when it comes to WeWork. Well, "We' will have to work out some of its technical issues.
"We" will have to make some structural and personnel changes. Sure, the company is struggling with figuring out its valuation model, especially since "We" isn't just a real estate player. The company also offers and runs on various technologies. Technologies that add value to its overall business.
“We have grown significantly since our inception,” the company writes in the S-1. “Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.”
But once it's all said and done, the company could emerge as a well-run, slimmer version of itself. There are several things working in the company's favor.
Among other strengths, WeWork has a strong brand. The Company and its brand is ubiquitous in the shared office space space. With a large footprint and even more impressive active user count, you will have a hard time finding an entrepreneur in one of the various major cities the company operates in who has not, at some point done business with WeWork.
"We" has over 528 co-working spaces in 111 cities across 29 countries, with a total of 527,000 memberships, 50% of which are based outside the United States. The company hopes to increase its real estate footprint to 169 more locations in anticipation of serving more people.
WeWork could significantly capitalize on the house it built by relying on its core strengths of providing space to America's next big companies, helping these small firms through the growth process.
Fintech-ing the company
With a strong technology infrastructure and a large presence in most of the major cities around the world, the company could be in a unique position to use its treasure trove of data and ability to raise cash to help provide startup resources and funding options to some of its more "promising" tenants.
"We" could start "WeBank" to provide startup capital and other financial and logistical support for a healthy profit. This is a business model that firms like Stripe and Paypal have found to work well when serving small businesses who need access to small loans quickly without the hassle of endless paperwork and credit checks, and are willing to pay higher interest rates in exchange for such convenience.
The forgotten men and women
I believe WeWork has the chance at this point in this country's history to make a difference while building a viable business. There is a global real estate boom going on, and WeWork could position itself to become a great beneficiary of this boom if the company could make certain alterations to its business model and find a large partner like CBRE or IWG to help it with their inevitable cash problem and also bring some operational and construction experience to the table.
"A business model that can be changed to transform the shared office space giant into a profitable company"
WeWork will have to actually get into the Real estate game to be able to make any money. The Company will need to buy or build office buildings and meeting spots in some of America's forgotten towns to be able to attract cash-strapped entrepreneurs and create jobs in the process by bringing in bigger firms who will be drawn to the idea of being able to setup operations relatively quickly through WeWork's turnkey model.
All across America, there are dilapidated towns just dying for some sort or economic stimulus. These towns typically have lower cost to build and an overall upside down real estate market. "We" could help solve this problem.