[jacobwal]

Does anyone have the bull case counter to this? Similar to aresant I don't mean to belittle WeWork's achievement but these facts, alongside the headlines from CEO claiming that: "Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."[0] it's easy to be skeptical. Again - would be great to hear the optimist's take on this, if anyone has it.

0: https://www.axios.com/wework-ceo-valuation-based-on-energy-a...

[smallnamespace]

There's a strong argument to make that executives are strongly incentivized to make their companies riskier and more prone to bankruptcy in the long run.

The bulk of executive compensation is in either outright equity ownership, or increasing bonuses based on equity price increases. Equity can be viewed as a call option on the enterprise value of the firm [1].

If you own a call option, you can increase its value by either making it 1) more in the money (by directly increasing the enterprise value, i.e. by generating value 'the honest way') or 2) increasing volatility directly, either by taking real economic risks (investing in more assets) or utilizing leverage (debt). Here we see both.

Note that financial investors in a company can be perfectly OK with results that boost the bottom line today, but lead to disaster down the road, so long as they're convinced there will be a short-term boost in the share price (at which point they exit and sell to the next sucker).

[1] https://www.fields.utoronto.ca/programs/scientific/09-10/fin...

[fragmede]

In terms of "tech" start-ups fads, the current fad is crypto-currency, it was "social" before that, and I'm optimistic that there will be a fad after the blockchain. The optimist isn't worrying about "the first tenants off the boat" in a recession, the optimist looks forwards to the next bull run, and whatever the next fad actually ends up being, those companies are going to need office space, and WeWorks is betting on selling shovels in the form of office space.

Just like companies have moved their computing to the cloud, the bet by WeWorks is that office space itself can be thought of in the same way. Sure, companies having their own office space will never go away just like on-prem will never go away, but for a specific type of company, WeWorks is betting that it's a niche that's still big enough to justify their $20 billion valuation.

They do add some value; basically, having an office manager, and for a sole proprietorship who may be big on plans but short on time, it may be better to exchange money for WeWork amenities, rather than spending time dealing with office stuff, eg going to supermarket to stock the office with snacks.

WeWorks isn't selling office space by the sq foot, but similarly, Apple doesn't sell computers by the gigabyte of RAM either. They sell being a part of a sexy glamorous office full of other people seizing life by the horns and living life to the fullest, including meetups, and happy hours, and an app. Gotta have an app. People don't do the boring office job that your parent's did, at a WeWorks space. (Whether or not people are doing the same boring office job is besides the point, that's what they're selling.) By building their brand, and offering convenience and consistency, the goal is to just be where sole proprietorships and tiny companies work, during this fad, and the next.

[alpos]

There's a gambler's case to be made for almost any new debt issue.

It's really just a matter of sorting out where the notes one is considering are in the pecking order and estimating the probability of the issuer going bankrupt to put reasonable bounds on expected return of principle if they fail. A similar estimate can then be made on the probability of default or restructuring for the notes under consideration.

Given that information and a big enough coupon, a quarter-Kelly or half-Kelly bet may not be unreasonable.

At this point there are too many unknowns to make that case however. We'll have to see what coupon they decide on and enumerate the things that could knock them out or severely limit their free cash flow.

To your quote from the CEO, it's not a great way to market debt issues tbh. WeWork really isn't any different from any other REIT and one does not lend a REIT money because they are great people.

[zackbloom]

WeWork might do exceptionally well in a recession. As businesses can't afford to keep their offices, they may downsize, and become WeWork customers.

[dogma1138]

I’m not sure about that WeWork is considerably more expensive than running your own lease or even renting old school managed offices.

I did succeed because it had a lot of customers with a lot of money to burn (startups) and it offered very good networking opportunities, later on it offered top of the line real estate and services but they were never the economic option.

In a recession when there won’t be VC money to burn and an infinite amount of rounds to raise it I don’t think they’ll do very well.

Traditional businesses won’t get much value from most of their offerings and if they would be cutting back then cheap lease in industrial parks and sub prime locations would be what they’ll be after.

[ithinkinstereo]

During a recession, businesses--large and small--are going to cut out all the frivolous VC-style perks: snacks, booze, trendy furniture, etc.

WeWork isn't cost effective vs renting your own office space, it just removes the friction (and yes, some of the related costs) involved with getting a "trendy" SV-style office.

During a crunch, I think we'll see alot of these businesses retreat to sparser accomodations in run of the mill office buildings removed from downtown. WeWork will be constrained in this environment, since the record leases they are signing will place a pretty high floor on how much they can lower prices to compete...

If the market rages for another 5 years, WeWork is gonna hit it out of the park. If we recession before that, it'll implode spectacularly.

[jshaqaw]

As someone short TSLA 5.3% debt, at least at high 7-8% on these bonds you are getting paid to take some risk