WeWork: A Modern Day Ponzi Scheme Set for an IPO

June 5, 2019

The guy came up with a few ideas that I was able to implement in certain goalie equipment that I felt was beneficial and good for the consumer. Now mind you, the kid lives 15 minutes away from me and asks me to meet at his office on King Street. He stated that his office was a WeWork location and to meet him at the lobby on time. I arrived on time and he gave me a tour of the office. He told me he pays $500 a month for a chair and table. He pointed at some booths and said these are where everyone goes to talk on their phones. However, I noticed a few guys talking on their phones quite loudly, it looked like they were trying to impress some of the females in the office with their position, so of course why use the phone booth?


The rooms were big, collaborative, and monolithic in structure. He told me the best thing about this place was meeting people rather than going to coffee shops for coffee dates. He said this was way easier because the beer and coffee is free. He said if you have more money you can even rent this big conference room for $1500 a month. "That's the goal, you've got to feel important, you have to impress people to get what you want in order to build your business," he proclaimed to me. "The beauty of WeWork is building a like-minded community not based on business, but connections. You become a real go-getter here. Even though sometimes the room is empty, I think WeWork hires a bunch of girls just to sit around."


I never heard of WeWork so I decided to do my own research. The company provides "shared" workspaces for technology startup communities that feature shared spaces and office services for entrepreneurs and companies. However, most of these entrepreneurs seem to only have access to WeWork through the money their parents give them to afford a space to hang out for the day. The company is backed by Softbank and its $100 billion Vision Fund and aims to go public with a valuation of $47 billion. Where is the justification behind this? WeWork's own CEO admits the company's valuation can't be justified using financial metrics or projections while analysts themselves appear to have given up on a numbers-based approach to fairly valuing the company.


WeWork's CEO Adam Neumann declared that Softbank's investment was drastically cut following his conversation with Masayoshi Son who indicated the deal was no longer viable after Softbank shares declined 20% in the tech rout of December 2018. Masayoshi, CEO of Softbank, is a bit of a spoiled brat himself and I doubt very much that his company will last more than 10 years with the heavy debt load weighing down their balance sheet. Even the Arabs cautioned him not to invest in WeWork. WeWork's landlord/tenant relationship is tainted considering the conflict of interest of WeWork's CEO Neumann who actually owns multiple buildings that WeWork rents floors from to operate its sharing workspace structure. If he owns some of the buildings, then the social interaction that he's providing will go up in price in terms of the small square footage the consumer buys. What the consumer is buying is a pipe-dream based on scale. What the CEO is trying to do is buy all available office space so that he can raise the prices of his underutilized buildings.


The Ponzi scheme involves memberships that are able to catapult the corporate long-term leases into profitability. It's alarming that WeWork now controls over 15.5 million square feet across 24 countries including its largest tenants in Manhattan, Washington D.C., London, and so forth. If the owners and developers allow WeWork to fail, it will depress commercial real estate prices to such a degree that will bring a financial collapse as experienced in 2008. Broadly speaking, credit and involving leverage with respect to their membership is the only aspect and value that the company can adhere to with respect to their "spiritual" valuation that the CEO has mentioned.


When the next economic downturn hits, WeWork's landlords must renegotiate their lease agreements to more favorable terms involving more of a management structure rather than ownership or leasing. In simpler terms, real estate owners don't want this company to fail even if they're losing money when the economy turns against them. WeWork negotiated their leases in a bullish real estate market, so what happens when that goes bearish? WeWork will rapidly lose memberships and will be stuck with long-term leases with investors' money footing the bill. Most of WeWork's social media content is based on them differentiating themselves between a coffee shop and a frivolous real estate company. WeWork's India video on YouTube shows individuals dancing instead of working and growing business.


What WeWork created is a simple playground that can never materialize into a profitable operation. Their operational office hours are 9AM-6PM Monday to Friday; that means they're under-utilizing their square footage. What WeWork is doing is distributing office spaces through memberships. Landlords will react expeditiously with the fluctuation of demand by building up office space in good economic times with low interest rates while reducing investment in bad economic times and higher interest rate eras.


It was odd when a sales rep for WeWork approached myself and a friend of mine when we visited one of the Toronto WeWork locations. She told us that the beauty of WeWork is the cohabitation of interconnected people that is drawn upon business. I told her I'd think about joining sometime in the future. After a few beers in the WeWork kitchen I noticed a woman approaching a man asking for a date.


I feel sorry for companies like Amazon and Microsoft leasing WeWork office spaces. Why would anybody put their employees in the position of being cannibalized by their competitors? My recommendation to every investor is that when this IPO comes out to not only buy the puts, but to short the stock. A fortune will be made. Masayoshi, CEO of Softbank, is weak and has made numerous failed investments such as Bitcoin at its peak. Masayoshi represents a pseudo-tech bank built on frivolous and inexperienced investments. We are just beginning. The whole company is based on members connecting with each other until the space that they are leasing becomes immaterial.


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