People sometimes incorrectly assume that the proper way to benefit from overpriced assets is to sell them short. Truth is that any selling will suffice! Housing bubble? Build more houses, sell. Corporate credit bubble? Start a corporation, get credit. Tech unicorn valuation bubble? You got it, create a stupid startup, pay yourself huge salary and sell your stock on private markets.
Bottom line is that supply follows demand - if there is demand then supply will materialize. This is the "magic" of capitalism. It's no different with WeWork, which is a consequence of investors chasing outsized returns in a low return environment.
Matt Levine's column on the topic (scroll to "We We We"):
https://www.bloomberg.com/opinion/articles/2019-10-02/the-tr...
And if you don't believe that this is caused by chasing crazy returns see this interview with Masayoshi Son about how he secured $45B in 45 minutes from the Saudi prince (1:05). He said he wants to give him a $1T gift:
Congratulations, this is a Michael Burry level of play. But not as "pure".
Becomes really obvious, there inflation in stock prices that isn't supported by any real economic growth. Makes sense then that if you can create bullshit stocks out of thin air and push them onto the market with all the other bullshit inflated stocks. Then you can make a lot of coin. Especially if you can get investors to swallow tech company valuations[1].
[1] Go ahead try and value any tech company as if it were a ordinary company. I dare you.
ok. Let's look at Apple compared with three non-tech F10:
PE Yield PEG EV/EBITDA
AAPL 19 1.35% 2.0 14
WMT 23 1.77% 5.3 13
BRK 19 0.00% 0.86 10
MCK 9 1.23% 1.27 8
(1) WeWork is able to secure the $6 billion loan commitment.
(2) Softbank gains 51% voting control over WeWork, getting Adam Neumann totally out of the picture.
(3) It avoids WeWork going bankrupt (and setting its value to zero), while Masayoshi Son is in the middle of raising money for Vision Fund 2.
If it goes bankrupt a year from now, Softbank will have already raised money for their next VC fund, and like startup founders of failed companies, Masayoshi Son is probably hoping that people will forget about his prior mistakes / trash fires, and if Vision Fund 2 is at least halfway successful, he'll be able to continue to play his VC games. Being able to play the part of the visionary VC is probably well worth pouring another $3B into the WeWork firepit.
This is insane.
Real estate isn't SaaS where you have to pay a lot of developers to build a usable product and then scale your customers to pay for it, you can make money owning one unit.
One would think they are profitable on a per location basis. But just losing lots of money overall due to huge growth.
SaaS economics are much easier since marginal costs are $0. WeWork has to commit to very large lease expenses and then find tenants to move in at higher rates.
Even with the rates being inline with competitors and cost of real estate, they have an incredible amount of corporate overhead vs a localized management company. Honestly I can’t see this business model ever working out as short of travel locations there’s nothing they’re bring to the table vs the added costs. It’s a shell game and the third shell is being lifted.
Neumann’s real genius is his ability to turn investor’s cash into his own, it’s astonishing that he gets away with it even now.
Seriously looking for someone to explain why the WeWork glass is half-full.
Right now most of their buildings are still pretty new, so they are not full enough, but that should change over time.
Well, apart from that IWG had already achieved it, of course.
Why would they save his hide when the money could be used to cover more of We’s enormous unending losses?
SoftBank is paying off Adam Neumann's creditors because that's how finance works - JP Morgan and SoftBank have made some deal to make sure they both come out okay, without really caring about the end result for Adam. If it's good for him, that's incidental.
Though I don't know him personally, given what I've read of Mr. Neumann, I wouldn't put it past him to take the company down with him in pursuit of his ego. By his comments of wanting to become president of the world, solve world hunger, etc., he seems to have a massive God complex. It is probable he remains convinced he is the best person to lead wework.
So let's examine the first condition - SoftBank needs to put around $3Bn into the company to get through the year. Let's say that's right, it's going to cost them that amount, and over the next year they completely stop the burn rate. That essentially means you end up with a IWG sized company, with more debt, arguably a huge hangover of extra over-head, and broken processes. IWG has a market cap of $3.5Bn. So let's assume neutrally WeWork can get back into a normal situation for an office rental company- that is a bad investment, you're better off letting the company go bankrupt..
So the second situation seems more likely. WeWork is trying to hide the scale of its problems until the next fund has been completed. I can't help but think that people are going to catch on to that - they caught on to WeWork and now SoftBank are really going to be subject to way more scrutiny.
https://www.barrons.com/articles/softbank-stock-wework-and-u...
The WGS law firm mentioned are better known for Chapter 11 "restructurings."
The Saudis who were persuaded to put money into Softbank are better known for this kind of thing:
https://en.wikipedia.org/wiki/2017%E2%80%9319_Saudi_Arabian_...
Interesting times for Vision Fund 1/2 and SB.
1 - https://www.businessinsider.com/running-list-softbank-invest...
If that is the case, then this cannot end well no matter how they trim operations
https://news.crunchbase.com/news/softbank-dealt-in-tenth-of-...
It could trivially collapse the VC market as companies are largely failing to IPO, and depending on how it's leveraged (I do not know nearly enough details) it could absolutely have serious economic shockwaves throughout the world.
> I can't imagine their failure hurting market sentiment overall.
I don't see why it would be any different than 20 years ago and the dot com bubble. Everybody says this time it's different, yet the overwhelming majority of tech companies IPOing are hemorrhaging money. Look at Uber - losing billions of dollars per year with no end in sight and their stock continues to decline. And of course Uber was a Softbank investment.
I just can't imagine why anyone would put money into the Vision Fund 2 after watching what happened with the Vision Fund 1. I don't have billions of dollars to invest though, so I guess I'm not his target audience. The man is even famous for losing the most money in history, and yet people seem to be rallying for him to do it again.
https://arstechnica.com/information-technology/2012/10/how-s...
Apple and Microsoft signing up as LP's for the new fund seems weird to me. I realize they are sitting on enormous piles of cash and want to find new ways to invest it, and they can comfortably put billions behind extremely risky assets, but even then it makes no sense to me.
I just don't get it, but maybe that's why I'm not a billionaire.
To put numbers on "enormous piles of cash", Apple books $20 billion in profits a quarter [1] and $245 billion cash on hand [2].
My guess is that if they are looking for risky plays, there just aren't a lot of options for the amount of cash they have.
[1] https://www.reuters.com/article/us-softbank-group-vision-fun... [2] https://www.cnbc.com/2019/01/29/apple-now-has-tk-cash-on-han...
Now they're realizing it's not that simple to deploy $100 billion without vastly skewing the market and basically creating their own bubble.
WeWork is absolutely nothing new, the industry already knows what the optimal numbers need to be and WeWork is nowhere near them to ever be a profitable business in its current form.
Very concrete example of growth over profits - am not sure what the profitability timeframe would be on that model if we even try and look at it logically.
Also let's not forget how many pension funds are tied up in VC portfolios, so while it may not have an immediate crashing impact on everybody it can ruin people's retirements.
Their last quarter was $10b in net income, and $11.5b in operating income. The last four quarters were $55b in net income, $64b in operating income.
Apple's current cash plan is to draw it down to net zero, according to Cook, through returning cash to shareholders. I would expect them to continue to be extremely conservative on investments and acquisitions as per their historical norm. Their net cash is down to about $100 billion now, and total cash was $210b as of the third quarter results (likely under $200b now).
Anyone can grow fast by spending easy money without any need to earn a profit. What does that prove exactly?
https://www.investopedia.com/ask/answers/difference-between-...
https://ftalphaville.ft.com/2018/11/13/1542091438000/How-acc...
These results beg the question of just how much weight we should give analysts' earnings forecasts. It turns out, not much, especially in the long run.
Peter Berezin, the chief global strategist at BCA Research, is out with a new report about stock selection and market timing. In it, he asks the following: "How can we distinguish between hidden gems and fool's gold?" The answer, he determines, is not the thousands of analysts Wall Street has bankrolled to do just that
PS - Just to be perfectly clear, I was definitely joking about WSB. Sister comment is right, WSB is the 4chan of "finance".
EDIT: not majority of shares/voting power, he gave that up when stepping down
[0] https://www.nasdaq.com/market-activity/stocks/amzn/price-ear...
Interesting negotiating position!
But in real life things are not quite that easy ;)
How much did WeWork's brand help exactly? It just made the crash harder. Nobody cares about a brand, and definitely not when it comes to office space.
Regus is geared towards small businesses anticipating a long-term home. WeWork is geared towards individuals and companies that don't know if they'll be around in one year.
As a freelancer, Regus is too large of a commitment while WeWork is more manageable.
If you still want all that then Regus has a new sub brand called Spaces: https://www.spacesworks.com/
Anyways whatever brand they had has transformed from asset to liability now when 75% of the valuation evaporated in 2 weeks. An overinflated bubble investment with no serious metrics or leadership is not clearly anything of reference.
On the financial side, yes, there's a tremendous opportunity to be hugely profitable. In 8 years, WeWork is now bigger than IWG after 30 years. Where do you think think the upside lies?
WeWork was much more expensive and a much noisier and busy environment, especially if you don't get your own dedicated office space, and if you're going to do that then major cities all have tons of subleases which are much more attractive.