This article comes from WeChat public account “Deep Net”, author Xiang Xin, and Ai Faner is authorized to publish.
Luch like Uber changed people’s travel habits, WeWork spent nine years trying to subvert people’s inherent perceptions of commercial real estate and office.
According to the original development of the story, WeWork is the new economic company that is likely to become the second largest IPO after Uber this year. However, the plot did not follow the original plan. It took only six weeks from the most valuable technology company in the United States to encounter Waterloo.
WeWork opened the IPO road at the end of last year. When the prospectus was submitted in August this year, the company could have raised at least $3 billion through the listing. The plan was met by Waterloo, and the valuation and business model was questioned by investors. WeWork’s parent company We Company had to formally announce the withdrawal of the prospectus submitted to the US Securities and Exchange Commission on October 1st, seeking to postpone the IPO.
A negative chain reaction followed.
According to foreign media reports, first CEO Adam Neumann, company vice chairman Michael Gross, real estate investment department co-head Wendy Hilstein, co-founder and chief brand and influence Executives such as Libica (the wife of Neumann) announced their departure; subsequently, the initial layoffs of about 2,000 people were released, up to 16%; not only that, in response to financial pressure, WeWork is also considering selling several external The business unit that was acquired.
The latest news shows that this week, WeWork is negotiating a new round of $1 billion in financing with the company’s largest shareholder, Softbank Group, to help WeWork go through the restructuring phase.
Founder Adam Neumann’s successor, new WeWork CEOs Artie Minson and Sebastian Cunningham later said in a statement: “We have decided to postpone the initial public offering, Focus on the core business of strong fundamentals. We are committed to serving our members, corporate customers, landlord partners, employees and shareholders as always. We very much hope to operate WeWork as a public company and look forward to Review the public stock market in the future.”
But obviously, in the short term, WeWork has a lot of levels to overcome.
The rapid expansion from the top 100 Silicon Valley
Time back to 9Years ago.
Adam Neumann and Miguel McKay, who are also interested in community building and design, founded a company called Green Desk, which convinced the landlord to divide vacant properties into office offices and then put it rent it out.
Green Desk asked the duo to dig into the first bucket of life, Adam Neumann and Miguel McCawe sold shares, held $15 million in financing, and founded WeWork in New York.
At the beginning of 2010, WeWork managed only two properties. In April 2011, WeWork opened its doors to entrepreneurs in New York and then gradually moved to the country and the world.
In 2014, WeWork established 23 locations in 8 cities; by 2015, WeWork’s office space had climbed from 55 to more than 500.
WeWork has maintained a momentum of rapid development. As of March 2016, WeWork has 80 shared offices in 23 cities around the world, located in New York, Boston, Philadelphia, Washington, DC, Miami, Chicago, Austin, Berkeley, San Francisco, Los Angeles, Portland, and more. Cities such as Seattle, as well as London, England, Amsterdam, and Tel Aviv, Israel.
The same year in March, completed by Lenovo Holdings and After the Hong Kong-led A-round financing, WeWork’s valuation reached $16 billion. Along with the same period, the wind of sharing economy set off a huge storm in the Chinese Internet, and WeWork entered the Chinese market. Shanghai became the first stop for it, and then entered Beijing, Guangzhou, Wuhan and other cities.
In July 2018, WeWork regained a total of US$500 million in Series B financing led by Credit Capital, Temasek Holdings, Softbank Group, Softbank Vision Fund (“Vision Fund”) and Hony Capital.
On November 14, 2018, according to an Reuters investor report, WeWork received $3 billion in new investment from Softbank Group.
Along the way, WeWork has 528 offices in 111 cities in 29 countries and currently has 527,000 members, up from 268,000 at the end of June 2018 and 401,000 at the end of December 2018. 40% of the members are considered corporate customers.
Continuous Loss and Earnings Challenge
The myth created by WeWork didn’t last long. The turning point occurred on August 14th. WeWork submitted an IPO prospectus to the US Securities and Exchange Commission, and the mystery that has long lingered on WeWork has long been unveiled.
The prospectus shows that from 2016 to 2018, WeWork’s revenues were $436 million, $886 million and $1.81 billion, respectively. However, similar to most of the sharing economies, the continued growth in revenue is due to losses from the expansion of stores behind the store.
Although WeWork’s largest shareholder, Softbank founder and CEO Sun Zhengyi publicly expressed support for WeWork in an interview, and said that within 10 years, the company will “achieve considerable profits”, but the current losses are still unable Eliminate investor concerns.
The prospectus shows that from 2016 to 2018, WeWork’s net loss continued to expand from $429 million to $1.927 billion. In the first half of 2019, the net loss reached US$ 904 million, an increase of 25.2% over the same period last year.
These figures mean that in the first half of 2019, WeWork would lose about $2 for every dollar of income.
October 6, Mike Wilson, chief US equity strategist at Morgan Stanley, said the failure of WeWork’s initial public offering marks the end of an era. Wilson said, “In our view, the days of generous funding for companies that have not achieved profitability are over.”
This means that technology companies and other high-growth software stocks will face difficulties and will put pressure on the overall market. “This is a fierce run, but it’s not a good idea to give a very high valuation of anything, especially for companies that may never be able to generate positive cash flow. The most speculative, most unreasonable pricing. The market sector has begun to collapse,” Wilson said.
A shared economic bubble?
WeWork’s model is very simple, straightforward is to find the property in the market, long-term rental, and then transformed into a shared office space, and then rented to a higher pricePeople or startups.
With the shell of the new economy, WeWork’s valuation reached $47 billion in January this year. According to CB Insights data, Uber was valued at $72 billion at the beginning of the year, WeWork was valued at $47 billion, Airbnb was valued at $29.3 billion, and domestic Drip travel was valued at $56 billion. It can be seen that the high valuation of WeWork is not unrelated to its prosperity and development of the shared economic industry.
But if you compare horizontally to another Belgian shared office brand, the IWG Group (formerly the Regus Business Center, which was founded in 1989), you will find that WeWork’s $47 billion valuation is ridiculously high.
As of the first half of 2018, the IWG Group has established a community of more than 2.5 million members worldwide, with 3,011 office centers in 1,090 towns in 110 countries, providing nearly 500,000 workstations. Regardless of the number of members, the number of countries and cities covered, the number of offices operated, or the global leased area, the IWG Group far exceeds WeWork, but its valuation is only $3.7 billion.
To this end, some investors believe that WeWork is not a technology company, but a real estate company, and it is not appropriate to enjoy such a high valuation.
What WeWork wants to do is to change people’s traditional perceptions of office space through the Internet, but in fact, its business model is still in the old-fashioned framework of signing long-term lease contracts and subletting properties to corporate customers. .
The prospectus shows that the largest share of WeWork’s cost is the operating expenses of office space, most of which comes from rental expenses. WeWork usually signs a 10- to 15-year lease contract with the landlord, and the expenses are distributed in each period. Expenditure. From 2016 to 2018, this part of the operating expenses was 430 million US dollars, 810 million US dollars and 1.5 billion US dollars, accounting for 99.3%, 92.0% and 83.5% of the total revenue.
As a result, the properties of WeWork Technologies have been questioned. Some investments believe that WeWork is not a technology company, but a real estate company and should not enjoy high valuations.
In September, when it decided to abandon its initial public offering, WeWork’s valuation had fallen to the $10 billion to $12 billion range – a nearly 75% evaporation compared to $47 billion at the beginning of the year.
The breakout of Chinese “disciples”
WeWork is not alone in the face of difficulties. RegusAs early as 2000, HQ Global Workplaces passed a similar basic business model, leased and remodeled, and then provided short-term sublease, which was sought after by investors. They believe that Regus and HQ Global Workplaces can leverage their office business to create a vast service network for growing companies.
But with the bursting of the technology bubble, the demand for shared office services and revenues have fallen sharply. Under the long-term lease and debt, HQ and Regus’ US subsidiaries have applied for bankruptcy protection, and only survived. Regus. This means that the development of shared office is closely related to the industry environment.
Because of the strong Internet genes, shared office companies are not satisfied with the only providers of workstations and office space, and more are hoping to play the role of “resource dockers”, which share the resources of the office itself. Grafting, operation and maintenance, and system services have all presented unprecedented challenges.
One of the important risks is that when demand falls due to the bursting of the technology bubble, the revenue of shared office will also decline, and the rent it needs to pay will remain unchanged in accordance with the law of real estate development.
WeWork has grown up in the past few years with a number of Chinese-style “disciples.”
After 2015, it was an important node. At that time, the new office space in the name of incubator, mass creation space, and joint office was highly sought after. Nash space, space, dream plus, excellent guest workshop, unbounded space (After the excellent customer service occasion) and so on.
In the rapid development, shared office space suffers from many problems such as occupancy rate, profit model, differentiated service, and commercial security.
“In 2015-2016, there were several joint-office companies that had problems with the capital chain breakage. They could not make a profit without understanding the business model,” said Feng Chao, an analyst at Analysys.
In fact, many joint office platforms will move toward the incubator, so their funds, staffing, and corresponding services will also require a large amount of upfront expenses.
The 36-year-old IPO application was not packaged for its shared office space.
WeWork’s ecstasy is undoubtedly a wake-up call for latecomers. The reason for the loss can be attributed to the rising cost of rent and subsidies for getting more users to do the money.
One of the problems that must be faced in the shared office industry is that it is difficult to support a complete business model by simply renting office space. Data shows that the shared office occupancy rate can reach breakeven when it reaches an average of 85%, but this figure is not easy to achieve. Especially in the early stage of shared office development and the expansion by acquisition, the difficulty of profit has become a common problem in the industry. <