A couple of insightful, unflattering articles about WeWork…
Ranjan wrote an article for The Margins titled WeWork and the 2010s: Fruit Water and Financial Arbitrage.
« The weirdest part of the entire experience was that the locations were so nice, they provided you an unfounded sense of accomplishment and legitimacy. Your startup could be floundering, but when potential clients, investors, or even your parents, came to visit, everyone assumed “you must be doing something right” and you carried on. For this faux-fulfillment, the price of admission was relatively cheap (~$350 a desk at the time). What I never understood at the time was, that was the product. »
« The price of admission for superficial legitimacy was very reasonable. »
« Instead of owning real estate, WeWork signed inordinately long-term leases with landlords. As part of those deals, they would receive huge concessions up front, like free rent for the first year, or the landlord investing into property upgrades. By drastically lowering their short-term expenses, it allowed them to significantly discount memberships to boost sales. »
« Matching long-term liabilities against short-term revenue generation is pretty much the definition of financial engineering… With the passage of time, we have the privilege of seeing WeWork’s arbitrage only ended up in increasing losses: We generated $1.54 billion in revenue in the first six months of 2019 and posted a net loss of $689.7 million »
Scott Galloway wrote a blog post titled WeWTF (August 16, 2019).
« GAAP accounting standards got you down? No problema at WeWTF. We has begun reporting “Community-based EBITDA,” profitability before the BITDA, but is also taking out expenses, including real-estate, that comprise the bulk of cost required to deliver the service. A more honest description of the metric would be “EBEE, Earnings Before Everything Else.” »
« The last round $47 billion “valuation” is an illusion. SoftBank invested at this valuation with a “pref,” meaning their money is the first money out, limiting the downside. The suckers, idiots, CNBC viewers, great Americans, and people trying to feel young again who buy on the first trade — or after — don’t have this downside protection. Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity. The bankers (JPM and Goldman) stand to register $122 million in fees flinging feces at retail investors visiting the unicorn zoo. Any equity analyst who endorses this stock above a $10 billion valuation is lying, stupid, or both. »
Galloway wrote another blog post titled WeWTF, Part Deux (September 20, 2019).
« Each layer that comes off the We onion stinks more and more. »
« Who is the head of the audit committee, and was he (they were all dudes until last week) the one passing out MDMA before each audit meeting? »
« We’ve witnessed a halving of journalists since 2008, while the number of corporate communications execs has tripled. In sum, the ratio of bullshit/spin to watchdogs has increased sixfold. »
And Galloway wrote an opinion piece for Business Insider titled NYU professor Scott Galloway says WeWork and Theranos have a lot in common: Their boards let them get away with ‘massive fraud’ (September 27, 2019).
« According to CNBC, this week the We board fired CEO Adam Neumann. No, the board didn’t fire him. The media, academics, and math fired him. The board enabled him and either was a co-conspirator in the fraud, or they were just idiots. Who did they replace him with? Art Minson, co-president and CFO, and Sebastian Gunningham, vice chair of the board. Their first act? Art and Sebastian announced they’re selling the $60 million Gulfstream 650 that they had bought/approved. »
« Mr. Neumann wasn’t fired, he was liberated. The con artist formerly known as Adam is leaving with more money ($700 million) than the firm is currently worth. »
« The lines between charm, vision, bullsh*t, and fraud have become so narrow as to be one line. »
« According to LinkedIn, there are more corporate comms personnel working for Bezos at Amazon (969) than journalists working for Bezos at the Washington Post (798). When firms are still searching for a viable business model, the temptation to go full yogababble gets stronger, as the truth (numbers, business model, EBITDA) needs concealer. »
Articles of Interest 