Was the WeWork Valuation Inflated?

Factors Arguing That WeWork Was Overvalued

Was the WeWork valuation inflated?
In this module, you have learnt about company valuations and how they are determined.  Consider the valuation of WeWork, an American commercial real estate company that provides shared workspaces for technology start-ups and services for other enterprises.  

 

It could be argued that its past valuations were inflated as these failed to take into account a number of key points, including:
The shared office space industry is vulnerable to economic downturn and is inherently risky (Moore & Platt, 2018).
The model may work in cities with strong transit systems, but it isn’t sustainable outside these areas, and therefore has limited scalability.
The business may suffer with changing generation trends relating to the sharing economy and urban living.
Technology will further disrupt the world of work and people will be increasingly able to work from anywhere at any time (Huberman & Shaforostova, 2018).
The growth projections are extremely aggressive and based on WeWork entering a number of other areas, such as gyms, schools, and housing, all of which have their own unique set of market challenges (Moore & Platt, 2018). 

On the other hand, some believe that WeWork has developed a sustainable business model in the following ways:
We Work’s business model is the natural response to macro-economic changes to the labour supply, with more mobile workers, freelancers, self-employed, and small-team professionals.
Co-working has made previously underutilised working space accessible to all types of workers – not just those in large corporates.
Millennials often prefer co-working to working at home or in coffee shops. 
People are willing to pay a premium for flexibility in their office space.
Flexible office space business models are more resilient in economic downturns as they offer more freedom to companies reluctant to sign long-term leases (Edwards, 2017).

The diverse tenant base within co-working spaces mitigates the impact on WeWork should a specific sector face a downturn.
We Work’s offering appeals to companies of all sizes, and larger corporates provide a stable revenue stream (Huberman & Shaforostova, 2018).

Was the WeWork valuation inflated?
Do you think American workspace and service provider WeWork has been overvalued in the past? Why or why not?

 

The following students have been discussed and the following is an example of their input:

 

Student 1:
Hindsight is a wonderful thing, but even ignoring what now may seem obvious wasn't it telling at the time that similar businesses (albeit not as trendy) were not where near the same valuation? I would strongly argue that the investors got something fundamentally wrong in their maths... or the execs at We were such phenomenal sales people that they really pulled the wool over the investors eyes!!! And that would be amazing given it was softbank!!! Some of the revenue expectations were truly spectacular - the hindsight again helps here to realise just how hard it is to generate returns in that space given what we know today.

Student 2:
First a high valuation phenomena that is happening in the startup world at the moment when it comes to tech (block chain, AI, ....). I still does not understand the tech part of the WeWork story. Fundamentally they loan space for a long time and resell them for short period!!! With all the risks linked to the economic risks that can happen (like the corona current situation). The leverage effect is really low from my point of view.

Secondly softbank got so many money to invest they have to take more risk than traditional investors. 
Perhaps an additional point which created that situation was also a governance issue with the founder (buying and reselling location to his company, having bought the We brand and loaning it to the company, ...) several points which make me thinking the due diligence was not properly done (especially we i see that just in our group we make comment on the salary of the founder in the Tessilo case !

Student 3:
From my experience, after having had offices in 5 different co-workings (Google Campus, Impact Hub twice and Utopicus also twice), I believe that the sector of this type of Real Estate companies is overvalued. In the case of Spain, as in other countries, there is an excessive hype about this type of companies and spaces:

I think this is a risk, which will be accentuated in times of crisis: there is a great abundance of these spaces, prices are high and the business model will suffer like the rest of the companies in the real estate sector.

Those companies that want to differentiate themselves, I think they should verticalize and create specific "hubs" for certain sectors. This is how spaces such as Level39 (London), The Floor (Tel Aviv), FinTech Plaza (Madrid) have emerged in the FinTech sector... Currently, from my point of view, coworkers are not able to create a real community.

Another strategy to consider is to take advantage of unused spaces to create this type of co-working, as is happening in shopping malls, which due to the crisis suffered by digital commerce, have lost affluence.