SoftBank’s WeWork Bailout Draws Investor Concern(wsj.com)
wsj.com
SoftBank’s WeWork Bailout Draws Investor Concern
https://www.wsj.com/articles/softbanks-wework-bailout-draws-investor-concern-11572086091?mod=rsswn
38 comments
This is the same problem when VCs invest in the same company across many funds. It’s hard to get precise on fairness and pricing.
> Masa is bailing out the Saudis.
Can you elaborate? genuinely interested to understand, isn't he investing more Saudi money in potentially doomed unicorn?
Can you elaborate? genuinely interested to understand, isn't he investing more Saudi money in potentially doomed unicorn?
The Saudi empire is built on oil, which won’t last forever. They are desperately trying to diversify by throwing money at bad ideas in a way that makes VCs look like toddlers playing with Monopoly money.
Eventually, a lot of those fail and the Saudis want their money back.
Eventually, a lot of those fail and the Saudis want their money back.
> Eventually, a lot of those fail and the Saudis want their money back
I'd wager that in 20 years the Saudi regime doesn't exist anymore, Softbank/Vision Fund or not. They're going to crash hard, the youth worldwide does not want dictatorships and theocracies any more and the old guards are literally dying off.
Besides, the Saudis (and other Gulf states) have lost more money to way stupider efforts than wework, for their scale wework is chump change.
I'd wager that in 20 years the Saudi regime doesn't exist anymore, Softbank/Vision Fund or not. They're going to crash hard, the youth worldwide does not want dictatorships and theocracies any more and the old guards are literally dying off.
Besides, the Saudis (and other Gulf states) have lost more money to way stupider efforts than wework, for their scale wework is chump change.
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This latest bailout is coming directly from SoftBank, not the Vision Fund.
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This article talks a lot about how the failure of WeWork's IPO might cause serious trouble for SoftBank. Not just the Venture Fund; all of SoftBank. Wow, talk about contagion.
Softbank has been basically existing off the one bet that they made back in 2000. They still own 1/3 of Alibaba
I'm no expert in real estate, residential or commercial, so I don't really see the big appeal of WeWork. Are there that many independent contractors and very small companies that need office space, currently don't have it, and would otherwise work at home?
I can see renting out some space for an afternoon, a full day, or even up to a week if you're needing to meet with clients, but WeWork seems to be banking on very small teams that have no where else to work. Their spaces look nice but again unless you're really meeting with clients it seems like office space like they provide is largely a waste of money.
Obviously there's something I'm missing because Softbank feels different.
I can see renting out some space for an afternoon, a full day, or even up to a week if you're needing to meet with clients, but WeWork seems to be banking on very small teams that have no where else to work. Their spaces look nice but again unless you're really meeting with clients it seems like office space like they provide is largely a waste of money.
Obviously there's something I'm missing because Softbank feels different.
I think you misunderstand the potential scope of WeWork's business. A third of WeWork's desks are rented by companies with 1,0000+ people. IBM, Microsoft, and a big chunk of the Fortune 500 are all customers.
In short, yes. Some companies also feel it’s a good idea to house their tech workers in a cooler trendy wework unlike the rest of their employees. But the price is pretty key. At reasonable prices for what they’re offering, quantity demanded would probably go down
I don't think cooler/trendier is the reason major companies with established long-term offices use WeWork. I spent a few months in a WeWork office - which was more uncomfortable than it was cool or trendy - as an employee of such a company and the reason was mundane: needing temporary space for a subset of the workforce during an office remodel. I'd wager for most big name clients the draw is the short-term/low-commitment nature of the offering rather than cooler trendiness of Class C office space that's been tarted up with a thin layer of Silicon Valley chic.
Well, other companies provide short term rentals. It's probably more the investor subsidized pricing.
is it a bailout? I thought it was a thinly vieled takeover.
Kind of both. The takeover was necessary to preserve their investment and any possibility of future gain: improved governance and pivot to profitability instead of growth are the cornerstones of a better IPO valuation in a year's time. In order to make it that year, they have to pump more money in. If they can convince IPO investors in a year that it's a $20billion company by doing so, they might approach break even territory.
$20B? That seems like at least one too many zeros.
My impression is their largest competitor is IWG plc, formerly Regus, which has a market cap of around $4.5B or 1.3x sales. Applying that to WeWork I get around $2-3B.
My impression is their largest competitor is IWG plc, formerly Regus, which has a market cap of around $4.5B or 1.3x sales. Applying that to WeWork I get around $2-3B.
$20B is optimistic, but not outside the realm of possibility if they can show revenue growth by filling the inventory they've been building, at the same time they drastically curtail the cash burn needed to obtain still more inventory. They're on track for a 50% increase in 2019 revenue over 2018 revenue, and if that growth continues into 2020, then an IPO in a year wouldn't be completely unreasonable at 5x revenue on the basis of continued revenue growth. Still a bit high for a traditional real estate company, but they may still have some tech-adjacent mojo to prop it all up. It's a longshot, but not impossible.
It seems unlikely to stop selling space at a loss while maintaining revenue growth. After all, if they can do that, why didn't they already?
Theory as to why this front page HN article has no comments so far: it is behind a paywall.
I am not one to complain about paywalls myself but here is a similar article that is not behind a paywall:
https://mybroadband.co.za/news/business/324915-investors-con...
I am not one to complain about paywalls myself but here is a similar article that is not behind a paywall:
https://mybroadband.co.za/news/business/324915-investors-con...
I sometimes wonder how many new subscribers NYT and WSJ got from HN. There are quite a few posts linking to them. They're quite expensive for semi-casual readers unfortunately.
A digital subscription to either of them is $1 a week. I think that's actually pretty reasonable.
For WSJ $1 a week is only an introductory offer, good for only 2 months. Beyond that it's $19.50 a year.[1]
The $1 a week for nytimes is also a promotional rate. It's normally $3.75 a week.[2]
[1] https://store.wsj.com/shop
[2] https://www.nytimes.com/subscription
The $1 a week for nytimes is also a promotional rate. It's normally $3.75 a week.[2]
[1] https://store.wsj.com/shop
[2] https://www.nytimes.com/subscription
But how come they are usually upvoted so much to end up in the top 10?
Bluntly, because most HN users upvote and downvote based on title and personal agenda, and don't even try to read the article.
At best, they'll jump into the comments, leave a tangental opinion, and upvote and downvote accordingly.
At best, they'll jump into the comments, leave a tangental opinion, and upvote and downvote accordingly.
Becaues NYT and WSJ are the still the top names in news, and most people who want to be informed have some form of subscription to them.
For anyone on Firefox:
https://github.com/iamadamdev/bypass-paywalls-firefox
https://github.com/iamadamdev/bypass-paywalls-firefox
Am I the only one who would feel wrong using this?
WSJ deserves our money looking at quality of the articles.
We’re helping them fix their business model
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The WeWork bailout throws that fundamental premise into question and makes it harder to calculate SoftBank’s liabilities and obligations, said a person who watches the credit markets closely.
This looks bad both ways. From a SoftBank investor's perspective, Masa is bailing out the Saudis. From a Vision Fund investor's perspective, SoftBank is buying for $8 billion what the former were sold at $47.