Workspace company makes substantial losses and providing short-term office space is notoriously cyclical
WeWork, according to the founders blurb, is a place you join as an individual, me, but where you become part of a greater we. A place where were redefining success measured by personal fulfilment, not just the bottom line. Very uplifting, but youd probably think twice before investing. Funky murals and cheese-tasting events for tenants are eye-catching but, in the end, WeWork is a provider of office space on short-term leases, which is a notoriously cyclical game. And, despite opening offices in more than 70 cities around the world, WeWork currently makes substantial losses.
However, SoftBank of Japan, one of the worlds biggest and most adventurous investors, is keen to throw serious sums at the company. It has already invested $4.4bn and, according to reports, is lining up another $10bn or $20bn. Softbanks co-traveller is Saudi Arabias sovereign wealth fund via the duos enormous $100bn Vision Fund, which aims to make big bets on businesses of tomorrow.
You certainly need to be a visionary of some kind to see how WeWork could possibly be worth the implied valuation of about $40bn. Losses more than quadrupled in the first half of this year to $723m. Even if you prefer to concentrate on revenues, and overlook the costs of rapid expansion, its hard to make sense of it. Revenues will still only be $2.3bn at the end of this year, said the company in August, and that was on a flattering run rate, or annualised, basis.
SoftBanks founder, Masayoshi Son, made one of the great investments when he backed Alibaba, the Chinese online retailer, in its early days, so his record cant be ignored. But the punt on WeWork looks bizarre. Old-hand property experts point to the fundamental risk of taking on long leases on big buildings and offering tenants short, flexible rents. In a downturn, they argue, the fixed costs will remain but income will be vulnerable. It seems a reasonable point.
Indeed, it is one reason why the UK group IWG, which has been offering short-term office space for 30 years, is valued at only 2bn, despite making real profits and having more revenue than its US competitor. Its investors know that this corner of the property world is cyclical. Whats more, the space is being crowded as the overhyped rise of WeWork spawns imitators at a furious pace. WeWork is a bubble, surely.
Luke Johnson must be choking on his Patisserie Valerie clair
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