Ever since WeWork released its S-1 in the run-up to its initial public offering there has been a nonstop line of comments on LinkedIn, Twitter, Facebook and I am assuming TikToc (I am told that is the thing these days) calling the company out for its obvious flaws. They have been called out for their assertion that they are a tech company rather than a real estate one, for their founder’s peculiar habits of licensing the brand to the company and lending himself money to buy properties (which he then leases to WeWork) and the lack of diversity on their upper management team. But, more than anything, they have been assaulted by pundits about their valuation.
WeWork’s closest competitor is Regus, a company that has been providing flex space since the 90s. They have over five times as many co-working spots (around 3,000 vs 562) and yet are only valued at $3.72 billion, less than one-tenth what the initial IPO price would have put WeWork at of $47 billion. Much of this comes from the fact that WeWork does not see themselves as a co-working company, or for that matter a real estate company at all. They see themselves as a platform for the future economy and company “committed to elevating the collective consciousness of the world by expanding happiness and unleashing every human’s superpowers.” It is exactly these kinds of outlandish statements that have made such fertile ground for the seeds of dispute.
This kind of change before an IPO is somewhat unprecedented. While they have not yet embarked on the “roadshow” that companies do to slap the backs of the world’s most powerful investment bankers, they have already started to feel some pushback. They also likely know that the same commentators who made disparaging predictions will be circling closely smelling for any whiff of blood. There are fewer instances more bloody for a company than watching their IPO price tank once it gets traded on the market and gets subjected to the mercy of its crowdsourced rationality.
Despite the setback, WeWork still has a lot of potential. They have successfully captured the hearts and minds of freelance workers, corporate occupiers and commercial property owners alike. They have proven that they can create a better experience, with better terms, for anyone looking for office leases (a little less than half of their clients are large firms). Tech companies were the first to show the power of a great workplace as a recruitment tool, now it seems like almost everyone is willing to spend on “an WeWork looking office.” They have also found a way to monetize office space at a much higher level than any other company.
But there are a lot of dangers to the business model as well. Flex space, by design, is the first to get cut in a downturn which could leave them holding the bag on a lot of expensive leases. Their competitor Regus filed for bankruptcy during the dot com bubble bust in 2003. Plus, their highly subsidized model that had them taking boatloads of cash from VCs could put undo motivation for them to grow too quickly or create a return on their investors’ capital. The IPO might have been an example of that although now it seems like both investors and management alike are starting to read the writing in their timelines and come back down to earth with their elevated collective consciousness.