Bristlemouth

A Value Investing Blog

Posted on 22 Feb 2017 by Kevin Rose

Peelenty of Alternatives to WeWork

Peelenty of Alternatives to WeWork

We have talked about WeWork on a few occasions in this forum. WeWork operates a handful of coworking office spaces in various cities around the world. There isn’t much to the business but investors continue to fall in love with it. Recently the Wall Street Journal reported that Japanese investment giant SoftBank Group was exploring investing “well over $1 billion” in the company. If Softbank closes on the investment, it will imply a valuation for the entire company of more than $17 billion.

The people at Softbank are supposed to know what they are doing. But for the life of me, I cannot understand what they see in the company. While WeWork spaces impress with enough single origin coffee and flavored water to re-hydrate the thirstiest of techies, we are still talking about “office space.” There is nothing stopping another landlord from designing a similar office.

This point was driven home a few weeks ago when my colleague, Steve Johnson, visited and I found myself scouring the New York City digital map for larger temporary office space to accommodate the two of us. Everywhere I turned, a new website popped up offering temporary workspace. Some offered their own offices like WeWork. Others like peerspace.com and liquidspace.com provided digital platforms by which anyone with an empty office could rent it out by the hour. And then there was airpnp.com. PnP – get it? For those truly enterprising capitalists willing to rent out their bathrooms on a per use basis.

While the vast majority of my choices tended towards the traditional drab corporate office suite, plenty offered a bit of pizzazz. At this point, WeWork can’t even claim to have the trendiest space in town. We thought the company was overvalued compared to coworking peers like Regus, but it looks like the rank and file are getting into the shared economy as well. Take away the exposed ceilings and kegs of beer, WeWork is simply a real estate business that Softbank seems to be confusing for a tech startup.

Peelenty of Alternatives to WeWork
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12 thoughts on “Peelenty of Alternatives to WeWork

  1. Network effects. They have the lead to create one. Plenty of alternatives to Air BnB – PLENTY. But the network. Softbank is not confused I assure you. Won’t invest myself though.

  2. I imagine people are thinking of it as the next Apple rather than the next Uber. A brand that everyone wants to be associated with. Can’t think for the life of me why that is important to office space but from marketing I’ve seen from WeWork it appears to be their positioning. At any rate, any company who’s whole goal is to the next anything is bound to fail more times than not.

  3. “PnP – get it? ”

    I’d actually take that to be short for “Plug and play.” This is a common IT expression referring to the ability to just plug in and be ready to go straight away.

  4. Hi Kevin,

    I live/work from home in Brooklyn Heights and having lived in the USA for the last few years can only (from the outside) agree with your thoughts on “office space/valuation”…..this said….there seems to be a ton of similar style operations starting up every week and announced in the NY-tech community….and they all seem to be pretty busy (or at least able to get additional investment funds to setup more of them pretty easily).

    Like I said I work remotely so have never needed to rent space (apart from attending events etc) but I’ve asked some people I know in NYtech to comment so might get some better insights on the secret sauce you are overlooking.

    Cheers,
    Dean Collins

  5. Like every company, valuation is a function of existing revenue/profit combined with growth expectations and barriers to entry. I really have no information on these, but as a user of WeWork for the last 2 years I can say that what they offer is an excellent fit for my needs and at least for me, scale matters when evaluating competing solutions. You wrote that their operate “a handful of coworking office spaces”: that feels like an understatement considering they seem to be in so many major cities, and have tons of location in large cities like New York. We were able to easily move from one location in New York to another, while a team member split his time with another location close to where he lives.

  6. The network value proposition goes like this – attract entrepreneurs (customers) to their shared work/social spaces. The more customers using the network/product, the more spaces or locations around a city-country-world included in the product, the more valuable the product is to each incremental customer. WeWork is not selling a serviced office. They think they are selling a collaboration/professional networking membership which delivers superior value because it offers the most comprehensive and best quality networking opportunities. As customers join, more suppliers (real estate owners) joining the network to offer space through WeWork, then more customers join and the professional networking opportunity is enriched. More customers = better networking opportunities and More space supplied = more customers. Regus et al do the same to an extent. But WeWork is very focused on a particular type of customer and it thinks that customer wants the network (multiple places and quality networking opportunities) as much as a serviced space at one location. Softbank is investing for that reason. Don’t know if the network will last or if it has as much value as they think. But then again, I’m not the market.

  7. I have a better idea. I often see clients underneath our favorite tree, which is nice cool spot (weather wise I mean), comfortable and relaxed, works well with my mobile internet hooked onto my laptop, has a great view towards the mountains and the lake, and I don’t have to get dressed in a business suit…. So the question is do you think you can organise a multi billion dollar IPO for my office underneath the trees?

    Sorry, just joking. Well, if somebody is silly enough to offer me some big money to take this concept forward, I’ll cut you in on some of the action. I promise, really!!

  8. Gareth,

    I, like you, am struggling to see what SoftBank sees in this business compared to similar business offerings at lower valuations.

    Is it possible that the value is in the type of people WeWork attracts to work in its spaces compared to similar businesses? Maybe it attracts a lot of tech start-up minded people to work in close quarters on their various start-up ideas and it provides the possibility to bounce ideas off one another (i.e. a much more collaborative environment is possible compared with similar office space businesses)?

    I understand there are incubators designed for this purpose but maybe this is a cheaper alternative (especially if your idea is no where near looking proven)?

    I don’t know – just guessing what it could be.

  9. In a Bloomberg Masters in Business (on 4 March 2017) Interview Scott Galloway reckons that WeWork is the “most overvalued company in the world”. A $17billion valuation equates to $440,000 per customer; and capitalises the value of a typical floor in one of its typical buildings at more than the value of entire building.

    BTW a very interesting podcast for anyone interested in the digital world.

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