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By Bilal Hafeez 23-08-2019

The WeWork IPO (Stratchery, 5 min read)

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WeWork’s expansion plans are aggressive: they are targeting every desk job out there. The problem is that half of their locations are still loss-making. Amid the backlash on their optimistic IPO valuation of $47bn last week, given the company’s results in the red, despite massive amounts of capital raised, this piece offers an alternative, bullish view. WeWork’s model is comparable to Amazon’s Web Services from 2006 in that they turn a fixed cost (real estate) into a variable cost for their clients, an approach that requires a massive upfront investment. Also, apart from IWG, there is little competition for the time being.

Why does this matter? We have previously talked about the number of tech start-ups racking up massive valuations despite little assets or profitability (Uber just reported a $5.2bn quarterly loss). While there is some justification for the high figures, there is plenty of concern if a recession hits. WeWork operates long estate leases on fixed terms, whereas clients can easily come and go. The question remains: can WeWork transform from an overhyped property start-up into a mature, diversified corporation?

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)

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