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SoftBank to take control of WeWork: Sources

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Re: SoftBank to take control of WeWork: Sources

#41

Post by wutbrodo »

OnlineGladiator wrote: post #39
threeseed wrote: post #31

Earlier quoted context omitted.

Same could have been said for AirBnb, Boston Dynamics, SpaceX etc. Many of the best companies look like risky bets at the start.

How do you consider Boston Dynamics successful? They are continually sold to new owners because nobody knows how they can generate a profit. SpaceX likewise is also in a somewhat murky financial position, although I suspect they will come out doing great in the future. My limited understanding is they are avoiding an IPO because their financials are not up to snuff. AirBnB was heavily derisked before serious investor…

> They are continually sold to new owners because nobody knows how they can generate a profit.

They were founded in 1992, were bought by Google and then sold to Softbank. I don't think that qualifies as "continually sold", particularly when the buy-and-seller was Google. I'm not as negative on Google's acquisition strategy as many here, but Google selling companies a few years after acquisition is hardly unheard-of.

Re: SoftBank to take control of WeWork: Sources

#43

Post by antaviana »

nihonde wrote: post #38
ivalm wrote: post #23

Earlier quoted context omitted.

But the reason they liked 20% ownership at $50bn is presumably because they thought they can cash-out at $80bn+. This cash-out valuation was not value-based but growth/hype-based. It seems that weworks will no longer be valued on growth/hype, which means that the value of weworks is much lower. Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future gro…

They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.

Probably less if we take into account tax credits.

Re: SoftBank to take control of WeWork: Sources

#44

Post by stickfigure »

hari_seldon_ wrote: post #37
philip1209 wrote: post #25

Earlier quoted context omitted.

I don't think their brand is "tarnished." The only people they are beholden to are their LPs, who I assume endorsed this deal. None of the actions they have taken as an investor should make others view their money "toxic." WeWork is just going to have to transition from wartime to peacetime. Ben Horowitz has a great article about what this looks like [1]. They're going to clean up the books, stop making risky acquisi…

Can you explain why you think they are not going to be forced to remain in “wartime?”

Presumably the unit economics are positive and they will break even.

Re: SoftBank to take control of WeWork: Sources

#45

Post by acchow »

paulsutter wrote: post #32
Traster wrote: post #12

It's very difficult to see how SoftBank breaks even on this new deal. They're investing $5bn now, with the hope that it's worth more than that when they IPO, but several things have killed that idea. Firstly, their brand is tarnished. Secondly, the growth play will be gone by the time they IPO. Thirdly, the charismatic leader is gone, so the message of "Disrupting" and "We're a tech play' is gone. They've put $5bn in…

WeWork had so many excesses, like paying 100% commission to real estate agents. Softbank can cut out such nonsense, not just the tequila and private jets. Softbank also has full access to the company’s financials and will be in a position to restructure. It’s safe to say they are a lot better informed than we are.

> like paying 100% commission to real estate agents.

Why did they do this?

Re: SoftBank to take control of WeWork: Sources

#47

Post by ivalm »

nihonde wrote: post #38
ivalm wrote: post #23

Earlier quoted context omitted.

But the reason they liked 20% ownership at $50bn is presumably because they thought they can cash-out at $80bn+. This cash-out valuation was not value-based but growth/hype-based. It seems that weworks will no longer be valued on growth/hype, which means that the value of weworks is much lower. Liking 20% ownership at 50bn doesnt mean you like 70% ownership at $8bn. The value of the company had significant future gro…

They basically bought control of the company for ~$15B. Any valuation north of $20B ought to put them in the black.

Big Edit: multiplying is hard, forgot to multiply by the PE ratio! Actually, potential valuation is 660B.. so 20% would mean 3% of US office real estate business. At a less generous pe of ~10 (perhaps more appropriate given they don't own the buildings), it would be about 10% of real estate market.

------

Sure, but $20B valuation seems hard to achieve.

US commercial real estate market by revenue is ~$1.1T [0]

Office space by value is about 1/8th [1]

Regus gross margin is ~16% [2]

Real estate generally has good PE ratio but partly because they usually own the property [3], so let's be generous at 30x.

So if we value WeWorks as a normal real estate company AND weworks has %100 of US office real estate business we have a valuation of 1100 / 8 x 0.16 x 30 = $660B.

Now, weworks exists outside of the US, but the valuation you propose means they must have ~equivalent of all US office real estate.

[0]- https://www.ibisworld.com/industry-statistics/market-size/co...

[1] - https://www.reit.com/sites/default/files/chartjuly92019.png

[2] - http://www.annualreports.com/HostedData/AnnualReports/PDF/LS...

[3] - https://www.investopedia.com/ask/answers/052815/what-priceto...

Re: SoftBank to take control of WeWork: Sources

#48

Post by threeseed »

bduerst wrote: post #40
threeseed wrote: post #34

Earlier quoted context omitted.

Softbank's model won't be proven for decades. It invests in brands that they believe will dominant their industry and still be around in 50 years time. And as Gitlab and others have found many people simply don't like working at home and want to be around other people. And also need infrastructure like meeting rooms on the odd occasion. WeWork provides that in almost every city. And 500,000+ people today currently se…

Which is still to my point: Softbanks Vision Fund model is not proven yet. It is just as probable it is more a vehicle to find a place for Middle Eastern money to sit than a true 10x fund strategy, which is becoming more evident since they're already working on Vision Fund 2. Requiring Gitlab doesn't translate into requiring office space either.

Back of a napkin:

* Growth in remote workers = 9% per year.

* Percentage of remote workers who want an office = 20%.

* WeWork market share = 90%.

= 1.62% of all workers each year will potentially shift to WeWork.

Re: SoftBank to take control of WeWork: Sources

#49

Post by anm89 »

Serious question: given the monstrous scale of softbank, the not so great quality of many of its holdings, and it's ties into multiple world economies, could softbank be a systemic risk to the entire world economy?

If Uber took a big write off at this point, not only would American and Japanese companies and Saudi Arabia take major losses but I would imagine big tech stocks in general would start to see a loss in confidence and a reversion to more normal P/E ratios.

I would imagine at that point softbank would be such a dirty word that it would have to firesale as well. And certainly no second vision fund.

And then you could go on and on about what would happen to pensions in the states and the rest of our systemically daisy chained over leveraged economy or whatever else if that happened.

Do I have an overly active imagination? Does anyone else worry about this kind of stuff?

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