Why WeWork’s Business Model Is Risky | WSJ

Why WeWork’s Business Model Is Risky | WSJ


– [Spencer] WeWork’s IPO is
coming as soon as next month. – Investors might rightly be wondering if it’s a bridge to nowhere. – This is, obviously,
an unprofitable company. We’ve seen a number of these companies come to market this year
with actually mixed results. – A lot of numbers are swirling around, but if you really wanna understand
WeWork’s business model, look at this one, $47 billion. That’s how much the
company is on the hook for in lease obligations leading
up to its public offering. It says a lot about how the company works and why some investors
are eyeing the risks. (pleasant piano and orchestral music) You probably know WeWork,
which recently changed its name to The We Company, as an office space with a specific aesthetic. You know what we’re talking about. The glass walls, plants, cafes, mid-century-style furniture. WeWork’s basic business model
is to lease large spaces, transform them to look like this, and then rent them out to
individuals and companies at a higher price. – [Spokesman] Our software
finds the best buildings in the best locations.
(dramatic orchestral music) Before we even begin construction, we build full 3D models to make sure we’re creating environments
that allow members to thrive. – [Spencer] As of 2018,
the company operated more than 35 million square
feet of space globally, and it currently occupies 528 locations in 29 countries around the world. (dramatic orchestral music) – [Spokesman] Speed is important, because on average, we
open two new locations every single day.
(dramatic orchestral music) – To cover the costs of
the renovations and leases, WeWork charges individuals and companies through four different membership options. For one of the cheaper plans, a member can bring their laptop and sit in a common area
if space is available, and for the most expensive plan, companies can rent out full offices, suites, or entire floors. WeWork also offers a service
called Powered by We, full custom build-outs
for larger companies. So why are some analysts
and investors skeptical? Well, some are concerned
with those lease obligations. When WeWork signs a lease
on a building in the U.S., they commit to an average of 15 years, but WeWork’s members only commit
to an average of 15 months. WeWork’s obligations top $47.2 billion, but its customers have only signed leases on $3.4 billion worth of space. Recently, the company has started signing more long-term clients, but still, with 528 locations, that’s a
lot of time and space to fill. It’s unclear how much
space WeWork needs to fill to break even, but the
company’s occupancy rate fell from 84% to about 80%
in the final quarter of 2018. The company said the drop
was caused by expansion. New offices traditionally
take up to 18 months to fill, but it’s unclear what would happen if suddenly fewer
start-ups and freelancers were looking for workspace, which could happen in
an economic downturn. It’s also unclear what would happen if existing tenants started to default. One place investors are
looking for precedent is International Workplace
Group, formerly known as Regus, a Swiss company with a similar
business model to WeWork. During the economic
downturn in the early 2000s, IWG’s U.S. unit filed for bankruptcy as its revenue fell but long-term
leases remained in place. WeWork has said it’s
flexible business model would help keep it safe in a downturn. The company’s rapid expansion has helped it stay out
in front of competitors, but some investors are
concerned that could change. That’s because WeWork’s business
model is easy to replicate. The company has filed for
some industrial design and furniture patent protections, but anyone with enough cash can lease out industrial office space
and flip it, and they have. A New York-based rival, Knotel, hit an estimated $1 billion valuation following a recent round of funding, and in 2017, Blackstone
acquired a majority share of The Office Group, a flexible workplace provider in the U.K. Investors will have to decide if WeWork’s size and
flexibility are enough to protect it in a period
of economic uncertainty. (pleasant mallet percussion music)

100 Comments

  1. IAN DUCAO says:

    It's not my office but it's OUR Office, the name doesn't sound on what Capitalism stands for.

  2. Lenny Miyasato says:

    Looks like a giant Ponzi scheme.

  3. Carlos M says:

    It sounds like a fad

  4. Youngboon Lim says:

    How is this video interesting

  5. Tiger Morcelu says:

    During a recession this goes down fast

  6. Radoslav Ivanov says:

    WeWork is just a bubble!

  7. boostindc2 says:

    when the market crash who's on the hook for all those leases?

  8. woshi6mang says:

    Wework shows off how big companies are signing up, while CFOs at big companies are laughing at how they're taking advantages of wework.

  9. Ian T.J Brodrick says:

    So you have to pay a company for the privilege of using Your own laptop, some people are so stupid with their money it hurts.

  10. ryan webb says:

    They’re going to be in business because SoftBank ?

  11. Chief Keyes says:

    ?wait you lease a building to lease it again? wait that's not how you do things, you talk about mark up through the roof you've got two middlemen now?‍♂️. For some reason I feel like this is a scam for building owners to get a free renovation because if the company goes belly-up most likely the building owners will have no liability smells of corporate welfare

  12. going2sleep says:

    Wework makes a great place for networking and generating leads for many businesses.

  13. James Kelly says:

    Their biggest mistake is the liability from lease length. 15years average lease?!?!?!? Oof

  14. TS Lee says:

    15 year lease on average? Not like 5+5+5?

  15. Rafael Aguilar says:

    Yea….no

  16. HOBBIT cadillac says:

    the day the idea of the office dies wework will prosper, it will take time though

  17. Teddy Kurniawan says:

    CAFÈ = We work + we eat

  18. pamdemonia says:

    I'm an electrician in San Francisco, and I had the misfortune of working on a WeWork build out. Only one, because they are such a pain to work for, no contractors will work for them twice. And I'm pretty sure The standard size of their offices would be considered a crime against humanity!

  19. Nokthula Madondo says:

    Oh, oh, looks like We Work is about to become We Don't Work 🙁

  20. Patrick says:

    I install the office space for WeWork in London with a company I work with. An they know how to spend a pretty penny ?

  21. brianmcg321 says:

    It's not risky if you're shorting it.

  22. brianmcg321 says:

    Rents out warehouse and puts in a ping-pong table:
    WeWorks: we are a tech company
    Investors: Surprised Picachu face

  23. vector b says:

    we work business model suck….it is just like other property rental company nothing more

  24. Mmapara Pilusa says:

    This is nothing but a big finesse.

  25. Hank's Gear says:

    I hate working out of weworks… I had a company offer to rent me a spot and I still declined when it wasn't even my own dime!

  26. Demetrius Primanto says:

    This really sounds like a miniature case of the 2008 housing crisis

  27. Cold Fury says:

    We work is fkked

  28. Leon Freier says:

    Flexibility through global long term leases? ?

  29. William Pembrooke says:

    NET (Cloudfare) short term analyst rating is buy with $24 currently $18.50

  30. David OMalley says:

    Idiotic concept that will fall hard

  31. Reggie Turner says:

    If you have a company and trying to build a great product, how my office look is the last thing on my list!

  32. Reggie Turner says:

    If they supplied all the computers and equipment you need, now they helping people business!

  33. Justice Warrior says:

    Only in America the most stupid business models actually work

  34. Jerry Wong says:

    They are expanding way too quickly and they are going to run out of cash. There aren't enough companies to rent out their space. It's like trying to hit a home run when a triple would have won them the game.

  35. Pablo Domingo says:

    Why work there when you can work from home ?

  36. pikachu _dead says:

    Why can't the freelancers work IN THEIR OWN HOME???!!

  37. 032603032603 says:

    It's not a fraud it's a tool! kek

  38. Libhongo Langa says:

    WeFlop

  39. Howie Venture says:

    I had a job that took place in a WeWork building; the building is packed with a bunch of fakes that have no idea what they're doing.

  40. Lyan Villacorta says:

    Why would an office deal with a lease owner instead of the actual building owner if they want an entire floor?

  41. GC S says:

    I've used them regularly for my company. It's great for our business model where all of us pretty much work remotely, and then only meet when we need to meet with clients or investors. We've never used them for more than 3 days at a time. Regus only does longer term rentals so we can't really use them.

    I have noticed that they are relatively empty when we use them. It's probably a sign of things to come. Oh well, back to hotel meeting rooms.

  42. Spartacus547 says:

    It looks like a data mining pit for foreign companies to come and pick the brains of new startups Like Chinaa! ?, " Aaaa all just plug into this open wi-fi here that all this other computers attached to Right! You'll be fine it's not like it's a Starbucks I'm only starting up a company surrounding by potential competitors and maybe foreign spies it should go fine, is there any way to fax all my ideas and source code directly to a Chinese company and just make this go faster, need my IP stolen by Monday morning. ?

  43. Piotrek Dąbrowski says:

    Please use metric system as well in your videos.

  44. Burgundzy says:

    If I’m self employed. Why would I pay to go to WeWork instead of a nice public library which is completely free, forever.

  45. _Dot Connector says:

    The are middleman property rental. Only 10%_20% of start ups could afford such business model. Most start ups are cash strapped, this means, u keep your cash flow controlled by renting a warehouse somewhere else. Coffee? Yea, the gas station in the corner has coffee.

  46. _Dot Connector says:

    Future conversation…
    WeWork?
    Oh yea! The company that back in 2021 switched its name to WeBroke!

  47. James Rattray says:

    Never believe the WSJ anymore, they make more like Huffpost than a real respectable economic media service these days, just full of sensationalism and melenial guesswork

  48. Sourish Saha says:

    it's another bubble for Americans which will go down and they will cry about another recession ?

  49. Rohan Kore says:

    Steve Jobs started in a Garage

  50. Brandon Messer says:

    They've focused on only one type of business. Office space. What about all the other business. Imo Restaurants would be a big one. Seasonal stores are another i.e Holloween. Im not sure a company so committed to asking others to think outside the box yet soo set on being in one will survive.

  51. Brandon Messer says:

    WeEat would be a thousand times better.

  52. Aimee brown says:

    Powered by weed

  53. Danvil says:

    The WeWTF founders are criminals and should all be in jail for their illegal self-dealing and complete BS. This company will never make it to an IPO. Neumann is a criminal and anyone who falls for his Ponzi deserves to go broke because he's already exited and will soon by hiding out in Israel to avoid US prosecution.

  54. lexustheimpaler says:

    Pure scam. SoftBank’s Waterloo

  55. A D says:

    A social media campaign to show the success of collaboration within the members of WeWork’s network would go a long way to attract new customers.

  56. Dewan Hassan says:

    This is just like polymatters video hmm

  57. Munkhbileg N says:

    I don't know but my instinct telling me that WeWork will excel in the future.. I like the design of the office but it was hella expensive.

  58. Wayne Henderson says:

    In the old days, if your business didn't make a profit, under it would go. Now adays, thanks to investors and loans, a business keeps going for years.

  59. Creamapod Games says:

    Why don’t they just buy the property instead of being a expensive middle man? Maybe a trade center like New York?

  60. Chris S says:

    WeInlfatedBubble is more like it.
    Do you hear the popping sound?

  61. Death Larsen says:

    "filed for Patent protection" of office design! You can't put your couch in the corner! We own that! The Jewish conman CEO (Bernie Madoff hello) tried to trademark the word we. What a farce

  62. mzamroni says:

    it's just regus with good looking app

  63. Abhra Biswas says:

    well..

  64. Pan Pan says:

    Why would you need an office space when you can work from home. Labs or production sites are more important

  65. Pragmatic says:

    Sounds like the biggest scam ever

  66. Samo The Alchemist says:

    Just go to a Starbucks

  67. Aquiles yanez says:

    I am a frelancer and home is the best place to work, doesn't make any sense to rent an office, if i need to meet a client i go to a nice cafe one block away, my business is very profitable without office

  68. LK72 says:

    Long term lease liabilities paid by short term lease assets. Asset Liability mismatches have sunk many companies.

  69. sooutstanding31 says:

    From WeWork to WeFuckUp ?

  70. Indie Fury says:

    We work another Uber. Sec is at sleep on the job again. No regulatory rules. Companies start in their garage.

  71. hyou zan ren says:

    Anyone bought it will be……WeBroke?

  72. John Smith says:

    Apart from the WeWorks company itself, why would seroius businessmen use that kind of service?

  73. intelligence wisdom says:

    Now they're saying this after we all know it's going bankrupt.

  74. CoryMing Lee says:

    Starbucks

  75. Jameel Ja says:

    How does anybody think this will work in the current economic environment. With stores closing and companies laying thousands of people off.

  76. my-financial-wealth blog says:

    WeWork IPO officially canceled because of crazy high valuation & debt. I was quite surprised to read Form S-1 filed with United States Securities and Exchange Commission. Also I was surprised by level of debt and long term financial commitments in front of property owners.

    WeWork bonds are traded at 82 cents on the dollar after all time high 103.21 cents on dollar. Company’s bond downgraded by Fitch Ratings to CCC+.

    https://my-financial-wealth.com/2019/10/07/weworks-unicorn-debacle/

  77. cvt cvt says:

    This is trash media

  78. Coolidge Andrew says:

    it is good for richer homeless shelter. Adding coin showers will make this bussiness perfect.

  79. billzhang98 says:

    Once the start up companies making money, they will plan their own office space and leave wework

  80. Mujtaba Ali says:

    why did i read that as ricksy business

  81. Lazaven says:

    This video aged well

  82. Casna says:

    And wework's rent is not cheap

  83. mangohunter says:

    Why water is wet

  84. cubeincubes says:

    Wework… no.. no you don’t

  85. Albert says:

    Do you know Softbank invested billions in this company recently?

  86. Mw Petersen says:

    WeWork DOESN'T!!!

  87. Denis Ho says:

    Its just a fad. Just work at your home office or starbucks. Why would want to add expenses for working?

  88. Käse Griller says:

    We Company turns out to be the Me Company, major surprise… Another win for faux moralistic unicorn economics!

  89. Tesla Op says:

    God
    A lot of start ups fail
    Where does wework think they gonna make money

  90. Michael Hooper says:

    I'm keeping my eye on this company… Once it goes bust, all of that real estate will be going for really cheap!

  91. ShakespeareCafe says:

    90% of start-ups fail. If you can't create a billion dollar company at Starbucks, WeWork isn't going to help you

  92. Liz says:

    I’ve been in a we work building and it’s beautiful but crowded (nyc)…. it’s good for people starting out their businesses and needed to impress investors or possible clients….

  93. Jin Wong says:

    Yeah no thanks

  94. Mo Khayat says:

    Im a little confused. Does WeWork own the properties that they are leasing out to tenants or is WeWork leasing the same buildings that they are leasing out?

  95. Nan Lin says:

    This company is a remarkable joke.

  96. guitar on sky says:

    co-working space is now becoming trend. But then, competitors are everywhere…

  97. Chris Whited says:

    So is the idea to lease TRANSITIONAL WORK SPACE? because if someone makes it why would they continue leasing? You might lease if you can move up and then obviously buy you're own property. It's basically rent space for upstarts.

  98. nathan ma says:

    Why cant i just rent an apartment or house as an office?

  99. Exciting Marmot says:

    People will pretend they are smart and can analyze everything when some companies fall..they just saying what they can see

  100. jonz23m says:

    The great achievement of this company is how they got this much investment.

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