WeWork Isn’t a Tech Company
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WeWork's business model is "borrow short, lend long." That is, they accept very short term promises to pay (month to month leases from customers), and aggregate them to make very long term promises to pay (mutli year leases from suppliers). Keep the spread.
This works as long as there are lots of customers who will pay a premium for short term flexibility. We can presume that will be somewhat cyclical, although in fairness they also probably have caught a secular trend toward remote / coworking / flexibility.
When the cycle turns down, those short termers are done but the long term promises to suppliers keep going ...
That also leaves aside the question of leases with escalators. I have heard a rumor that some WeWork locations have substantial out-year escalator clauses (meaning the rates they owe to suppliers sharply increase in future), meaning that even if customers stay on board, WeWork will face a need to raise prices substantially to meet its obligations.
Every airline that takes a loan to buy a plane is banking on future demand for air travel, for example.
Or take Amazon Web Services, which is building data centers to lease out on a short term basis.
Yes, there are tremendous risks involved, depending on the lease terms. But it's not at all unusual.
WeWork might be able to survive long term on two factors
1. Prestige & Environs - working in this sort of shared space may be viewed as luxurious in the long term due to rubbing elbows with other well-to-do folks, sorta like going to the opera.
2. Reliability of cost - Owning a condo is a strictly better decision than renting an apartment, but there are spikes in costs when appliances break down and building work needs to be done... though I think to properly reap the benefit of this WeWork needs to be and remain extremely proactive in maintenance, if some vulture capitalists get into the decision making process and let maintenance slip for a bit it'll erase all of this value by forcing the cost (in terms of inconvenience and unavailability) onto the consumer - it's possible this could also be lost if they fail to keep a nice margin of capacity above usage... again, as soon as someone wants to go to work and is unable to secure the space and is forced to either rent or lease conventional office space their competitive edge will dissolve.
I am highly skeptical of the long term prospects if WeWork fails to maintain their prestige and banking your company on prestige is an inherently risky approach IMO.
You are really pushing this point hard, when it does not fit.
I don't see why it would be any harder than selling off a plane in case of market downturn. Both are hard, and in both cases the owners of the asset (whether it's a lease or a plane) will likely incur a loss, so I don't really see any difference here at all.
The Amazon example is less relevant on that specific point as AWS owns and operates its own equipment.
No such lock-in exists with WeWork. In fact the entire reason for WeWork's existence is it doesn't have lock-in.
This isn't true for their expanding customer base: Businesses who are paying for blocks of co-working memberships to expand through services rather than finding new leases themselves. There is significant lock-in when this occurs, as people may move close to those WeWork locations, arrange their life around it, etc.
When things are booming, WeWork is advantageous for landlords, and appraisers/the market/potential buyers will underwrite that space positively.
However, there's minimal guarantees that WeWork will actually pay long term, or that you'll have any legal recourse. On top of that there are significant capital costs to a WeWork lease that landlords have to shell out up front. Their leases are typically structured with a lot of free rent up front, so the break even point for a landlord may be many months or years farther out than a typical tenant leasing comparable space.
The losers in the WeWork deal are the landlords, as they're bearing a lot of the risk, and get minimal upside. I'd expect to see a high degree of correlation between WeWork's IPO/stock price and REIT valuations. Underwriting will push the value of a WeWork lease if they can, which will only give more momentum to the bubble.
Source: Worked at a nationally invested REIT that had several WeWork leases in our portfolio
The thing is that the SPE is absolute requirement for WeWork. They will walk away if you try to challenge them on it. It's ultimately not an issue unless shit hits the fan. Smart underwriters will recognize that and price it accordingly. Unfortunately, there will be many that don't and execs that are trying to push value, so won't want a conservative view on those leases.
The biggest risk (outside of WeWork itself) is bullish investors buying properties at inflated values due to WeWork being on the rent roll, not doing their due diligence on the WeWork lease, and the bottom dropping out.
As polygotdomain wrote landlords know that want We on the lease, ask for it, don't get it, and sign anyway. Short of a smoking gun showing outright fraud courts are unlikely to disregard that bargain.
Couldn't this be interpreted differently? That is, landlords are having less and less choice. Something from WW is better than an empty building. Is WW a canary of sorts? It tells us about changes in the economy (less growing small to mid-size companies in major metro area?), as well as the health and strength there of?
And if building owners are own details space their choices are less robust. WW might not pay out well, but it's better than nothing.
Tenant defaults on their lease? OK, kick them out and get someone else in. What's the big deal?
So for an investor who looks at your rent roll, they will see that you have an increased rent arrears and they will value your asset at a reduced rate.
And as the sibling comment has mentioned, if you discount up front you haven't received any money.
Or worse still you provide a rent incentive in the case of a capex fitout and are now left with an office fit out a future tenant may or may not want but you have spent significant amounts of money on.
So you get an extra $1m in rent but it now costs you an additional $2m in interest costs financing your building and your share price (or the building capital valuation) has now dropped 15%.
Sorry totally simplified example...
In such times you see all kinds of shenanigans such as landlords giving massive concessions and tenant improvements, effectively dropping the economic price of the rent drastically but preserving the “headline” rent number. Go figure.
I understand that, and thus the question about WW being a canary in the economic coal mine. If there are more and more building owners who literally can't afford to "preserve the valuation" - and WW's success seems to hint at that - then doesn't that say something about the economy that aggregate numbers aren't seeing?
I understand the theory of "preserve the valuation", what I suggesting is that in reality less and less building owners are able to preserve that theory. And some of that is direct result of demand (read: the lack there of) not being in parity with demand.
I am no expert on real estate I used to be a property accountant at an international commercial property company and so used to compute out growth rates on rent and valuations for owners.
I do find WW's business model difficult to follow, there maybe something I fail to appreciate, I guess time will tell.
>Something from WW is better than an empty building...WW might not pay out well, but it's better than nothing.
The deals, if they go through to the end of the lease, are a net positive for the landlord, and they are better than sitting on the empty space. One of the benefits to a WeWork lease is that sometimes they can aggregate hard to lease space under a single lease where the individual spaces might be hard to lease, or there might not be a tenant in the market to take all the space.
The flip side is that WeWork spends a LOT of money on their build outs, and expects the landlord to subsidize that through high TIs (tenant improvements) and a lot of free rent. This means that a WeWork lease will generally wind up costing a landlord a lot of money up front, and it will take longer for that lease to break even.
Yes it might be great to have a tenant like WeWork in the later stages of their lease, but it's always a question of whether they'll have the income in those later years to make it pay off. The other aspect of this is that if WeWork goes dark, your left with space that's like too big for the market (WeWork will take a lot of space off your hands) which is problematic, but their build outs will likely not be very useful for the next tenant. This means capital outlays by the landlord to break up and possibly "whitebox" the space.
The valuation side gets more complicated, so I'll just put that aside for now.
>Couldn't this be interpreted differently? That is, landlords are having less and less choice... It tells us about changes in the economy, as well as the health and strength there of?
I think it does, in a similar way to Uber and Lyft ushering in the "gig economy", but as a company, WeWork doesn't have the tech side of it to back it up. Landlords having less choice is partially of their own doing, and partially a response from companies themselves. Landlords have been pushing rents like crazy, and in many markets tenants are just tapped out. Some of the rent growth seen several years after the recession has moderated, but it's still out of the reach of many tenants that don't have the kind of credit or strong balance sheets that landlords love.
Companies, on the other hand, are changing their strategies and thinking about the utilization of real estate much differently than they were 10 years ago. Open floor plans are the biggest indicator of this, as it allows for more employees to be places in the same square footage. With the high rents of class A office in the city and significant commute times in many metros, companies are now more likely to entertain the idea of having multiple offices, with secondary offices leveraging cheaper spaces either in the suburbs or cheaper markets. Remote work and remote only companies go along with that, in that you need less space if you have a portion of your workforce that is never in the office.
In a way, WeWork is supposed to assist companies by providing them this flex space or their remote employees with a place to work. The problem is that it trades flexibility for cost in a way takes away a good amount of it's value proposition.
Disclaimer: Landlord
If there's a shortage of space, having WeWork take a chunk of it off the market is only going to move rents higher. Also, whatever you sign WeWork at is going to set a significant comp in the market, which can again push rents. Businesses do like the idea of being close to a WeWork, so that's going to put more pressure on rents.
There are tenants that are great in bull markets, some that are great in bear markets, and others that are great in both. I would very much describe WeWork as a tenant that is a great bull market tenant, but that's about it.
You yourself said "long term promises to suppliers keep going", which sounds like borrowing to me?
I could just be dense here, feel free to correct me
There is a lot of ideology around homeownership both for and against, I am on the for side, so when asked about the social value of banking, that’s my go-to answer.
But maturity transformation requires FRB.
Stripe isn't tech, it is a payment processor.
Airbnb isn't tech, it is a hotel.
SpaceX isn't tech, it is a defense contractor.
Business and social changes aside, WeWork could have happened 20 years ago.
I'm not sure why Uber is a tech company because you can order a taxi using your phone, but WeWork is not ... because you can reserve a room or space using your phone?
Not all members pay for an office. Some of us are nomads and stay at whichever WeWork is convenient. We make reservations for space using our phone.
Early on, one of the UX joys of Uber was being able to see where your driver was and how soon before they would arrive. SMS wouldn't be quite the same, would it?
If WeWork was AirBnB for work spaces then I'd call them a tech company. But they're not.
So by that logic if Uber ever does migrate completely to a self-driving taxi system, it is no longer a tech company.
That seems fair to say. If Uber transitions to self-driving taxis the whole business model will be radically different. They'll have to employ hordes of mechanics, and lease huge garages to store vehicles and run repair bays. They'll have massive capital expenses, a complex supply chain to manage, and a large distributed and probably unionized workforce to negotiate with. Their geographic distribution, legal exposure, exposure to economic shifts like tariffs, reliance on capital markets, number of employees, etc... will all be radically different. It seems fairly obvious to say that pre-self-driving and hypothetical post-self-driving Uber are totally different kinds of companies.
Uber’s primary business is finding and exploiting legal loopholes, and ignoring regulators. They happen to have an app, that’s all.
An analogy would be a pizza company where you order a pizza with an app but it actually gets made in some random person’s house.
Marginal Cost of Servicing an Extra Uber Driver is $0 Marginal Cost of Servicing an Extra Uber Passenger is $0
Uber is a Tech Company.
The value prop of Uber was that you could be instantly and automatically matched with a nearby taxi (minimizing cost and time) and see those costs / timings in advance. That required[1] the internet and software, i.e. "tech".
[1] Ok, so hypothetically, you could've implemented Uber 60 years ago if the taxi company called every single one of their cabbies every time they got a phone booking, figured out which one was closest, sent them to your location, and then called you back to tell you "your cab will be there in 5 minutes". But tech made it VASTLY more efficient. Tech makes WeWork only marginally more efficient. Hence, not really a tech company.
In fact, I think "efficiency gains from developing tech" is probably the best way to determine if something is a tech company or not. SpaceX is a tech company because they're using advances in technology over the past 60 years, combined with their own advances in technology, in order to deliver a product (re-usable rockets) that is far more efficient than what we had before (and brings down cost appropriately).
Uber isn't at taxi company, since it doesn't own or operate taxis. Conceptually it's a platform for connecting independent taxi operators with customers, like Expedia or Craigslist or eBay.
Airbnb isn't a hotel company, since it doesn't own or operate hotels. Conceptually it's a platform for connecting independent hotel operators with customers, like Expedia or Craigslist or eBay.
SpaceX isn't a tech company any more than NASA is. They require science and technology but they sell rides on space ships that they own and operate.
Uber is a moonshot bet on re-imagining transportation when autonomous vehicles become a reality. If that reality never materializes, Uber either raises prices and sees its growth rate and valuation crash back down to earth or it goes out of business.
IBM owned everything in sight in computing, amd when PCs cam along, it improbably wound up owning them for a short while too...
Then MS took over. They owned everything in sight, but stumbled when the Internet came around, and then again in mobile. They’ve roared back, but they don’t own everything in sight.
Uber’s valuation doesn’t leave room for stumbles and settling for roaring profitability. It’s a bet that when the inflection point comes, they will own everything and keep owning everything.
It could happen, but it takes more than just autonomous vehicles becoming a reality for their valuation to become real.
When you get to the point of saying space rockets are not technology, it's time to acknowledge that somewhere in the construction of your ontology, something has gone wrong.
“Technology” means the same thing it always has, but the abbreviation “Tech” is slang for computing, the subject of the current industrial revolution.
Even if AirBnB isn't "tech company" it definitely is NOT a hotel.
- Low variable costs
- Low capital investments
- A lot of customer data and customer intimacy
- Network effects
- Ecosystems that boost expansion with little cost
Based on those features, of the companies that you listed here, Uber and Airbnb are definitely tech companies. So is Stripe, I think most of us would agree, although I'm not sure whether there are many network effects with their platform. SpaceX is not.
As such, the only way your point really stands is if one can make a valid argument that WeWork is doing something material and tech-focused that makes it different from a standard commercial real estate company. If it were leasing space and successfully executing on a model with low variable costs, low capital investments, lots of data, network effects and expansion-boosting ecosystems, that would be one thing. That doesn't appear to be the case.
We-work gets short-term monetary commitments from renters and turns them into long-term monetary commitments towards landlords
borrow-long then?
No, that is the market. Just like airbnb compared to normal renting.
You are right in that there is risk to what WeWork is doing, but if it's a hard enough problem, the premium paid by owners may be big enough to provide an acceptable margin of error. Secondly, perhaps there is a valid hedging mechanism? Third, does their large network and brand give them a competitive advantage at top of the funnel such that they can charge a higher risk-premium (spread) to owners?
We shall see.
It would seem that these days, Wall Street and private equity can agree that a "company that isn't growing" definitely isn't a tech company, even if it uses technology :)
More specifically by VCs which would invest in companies with horrible financials that can inflect at a quantifiable amount of capital and scale.
Oh well, language changes.
A company a while back was totally "blowing up the biotech space" (it was a random fairly empty article) ... I was curious and looked and they basically made a crud app... that could be used by a biotech company.
That's not to take away from whatever they were doing, but as far as I could tell they were as much in logistics as they were .. "a biotech start up".
I would consider tech a lot broader than that; if your company is making any kind of new innovative approach to solving problems (and the future of the business depends on this), you're a tech company. So companies making lasers, robots, drones, sensors, 3D printers, DC-DC converters, batteries, and housing insulation could all be tech companies... As long as they're trying something new. So a battery company that is testing new formulations is a tech company, and one that just mass produces the same alkali cells they've been making for 50 years is not.
Software is just one sub-category.
Technology is "the application of science to commercial or industrial objectives" according to the dictionary.
But a technology company is a company that makes technology. That inherently requires innovation.
A car is a piece of technology. An engine is a piece of technology. A computer is a piece of technology. A technology company is a company that produces products that are the application of scientific knowledge for practical purposes.
What we're really talking about is information technology, which is the study or use of systems (especially computers and telecommunications) for storing, retrieving, and sending information.
He said "It doesn't matter whether we are a pure internet play or not. Internet, Schminternet, it doesn't matter. What matters is obsessing over providing customer value."
https://www.youtube.com/watch?v=RyrmPMJoG0Q
That said, it is altogether a different question whether WeWork provides value for customers in a fiscally responsible and sustainable manner, and whether Nuemann has the foresight and business acumen of Bezos.
From a usage perspective? Any company that heavily utilizes tech in their day to day operations is a tech company too.
From a software engineer's career perspective? "Tech company" has become a term often used here, and usually refers to a company whose core business involves software engineers, and treats them as respected first class citizens.
Companies that fall under the first two descriptions may or may not fall under the third.
There are enough things wrong with wework that this is just muddying the issue.
A company that uses tech isn’t a tech company. A tech company is one that sells tech. It’s pretty clear what the difference is. WeWork is a real estate company, that’s it.
I would argue that a tech company is a company which derives most of its real value through technology. And that it's a spectrum, not binary - companies that sell hardware and software licenses are more "tech" than companies that heavily leverage uniquely valuable technology to sell old-school goods and services. But those companies with uniquely valuable tech to sell old-school goods and services, like Google/FB (ads), Amazon (catalog retailer), Netflix (entertainment like cable) still derive most of their value from doing technological things, and I think that makes them tech companies, even though they don't directly sell tech
But still, WeWork is not really a tech company because their value isn't in their tech
A tech company is a company whose product is "easily" scalable with a few taps of the keyboard and clicks of the mouse. A game development company is a tech company. Selling one, two or a few thousand units is not that big of a deal. Now, we can argue that scalability in terms of cloud services is an issue. Think Steam for video games. But generally, there's little difference "work" wise between selling 10 copies and 10,000.
A not tech company that uses a lot of technology, but again, is not a tech firm, let's say Haas. They build high-end CNC machines. Manufacturing one or two machines is not negligible. Well, kind of. Compared to them. They build like a few hundred a month. But lets say they want to build a few thousand. That's a big deal. That's more manpower. More equipment. More materials. More warehouse space. More planning. More everything.
But Autodesk selling Fusion 360 (modeling program for CNC milling) is a tech company. Because it's generally meaningless if they have 1,000 licenses a month or 100,000 licenses a month. Production wise. All the upfront work was done for the product and now it's a matter of people giving up their credit card numbers.
Which was obviously brilliant and they don't need me to say that. But, I don't think it's a tech company. Adding drivers is not necessarily that easy. I know there's a metric-fuck-ton of them right now. But bandwidth to send a copy of software and hiring a new driver are two different things. Same with allocating cloud server space and doing a background check on someone. I think the definition needs somewhere in there, humans cannot be the bottleneck. Uber's bottleneck is in drivers (and municipal policies), not getting people to download and sign up for their app/service.
I mean seriously. What scales easier? Getting people to download an app or hiring drivers across the country that don't shank their passengers? Yes they did a good job at hiring a fuck ton of drivers quickly. But Carnegie did a great job at mass producing steel when others said it couldn't be done. Didn't make that a tech company either.
Various businesspeople tried propaganda , buying politicians and so forth, this "gig economy" is the newest effort, it is going well. For them. Recommended reading: https://www.wwnorton.co.uk/books/9780393337662-invisible-han...
(As an aside, i think WeWork’s S1 has turned to a remarkable feat of marketing, making buzz around the company in cycles who are likely to be their customers)
An index fund might be a sounder investment.
--It must be a U.S. company.
--The market cap must be $5.3 billion or more.
--The public float must consist of at least 50% of outstanding shares.
--It must have positive reported earnings in the most recent quarter, as well as over the four most recent quarters.
--The stock must have an active market and must trade for a reasonable share price.
https://www.fool.com/knowledge-center/what-is-the-sp-500.asp...
No one said anything about "anytime soon"
(1) They are a US company.
(2) They raised at a $40bn valuation in their last funding round, so I don't know why you think a $5.3bn market cap is out of the range of possibility.
(3) The float will be whatever it is.
(4) WeWork is a real estate company. Real estate companies tend to make profit. The biggest issue most people have with WeWork is that their profits look small.
(5) Whatever that means. They will be in an active market, but reasonable is in the eye of the beholder.
Tilray had similar problems trying to monetize their high valuation.
The point is that bubbly tech prices in public markets are no less fragile than bubbly ones in private markets.
But yeah, if you sell integer percentages of a company in a short timeframe, you're right that you can't expect to get the current market price. I'm surprised that it moved it so much in this case, though.
So some wealthy people will buy bonds with negative yields, others will buy equity at inflated valuations like WeWork.
Strange times.
Pretty good time to have a lot of money (it's always a good time to have a lot of money), to own a business in a developing economy, to start a "tech" company to be acquired in a developed economy, to be in private equity, or to fraud/bluff your way into a lot of money in a developed economy (true productivity-increasing products/technologies are currently few and far between but globalization of technology and outsourcing is still going strong).
Not a great time to be poor, a saver, a licensed professional, or worker of any sort in a developed economy (aside from working at a "tech" company).
If it, nonetheless, sells at this price, it seems that it will more or less prove that IPOs don't have much to do with the fundamentals.
The way that those individuals arrived at that decision can either be through really technical analysis, or "I heard about it from my dog", or anywhere in between.
In principle, how it is different than AirBnB or Uber in regard of being a tech company? It's not like Uber or AirBnB's core compentancies are tech, I'm sure WeWork can also build a dev team making frameworks and research that some day might be used in their core business.
The article argues that the difference is that Uber, AirBnB, Yelp, Twitter is a tech company because they have "scalable virtual models that can be exponentially magnified overnight with little additional costs" but this seems to bu untrue since they did not took over the world. Maybe they are just humble but I think it's simply that their business model is "low touch high scale" and this is being mistaken with Microsoft's ability to develop technology and sell it infinite times with at no addditional cost per copy.
What stops WeWork from embracing the Uber model? Maybe you have an empty flat, you can turn it into WeWork location by furnishing the place according to the WeWork standarts and install some kind of kiosk and smart lock system. Uber makes the driver to use cars that obey certain standarts, why wouldn't WeWork do the same and "scale overnight"?
Everything is possible but that's worthless until someone actually does it. Uber, AirBnB, etc. have already done those things. WeWork hasn't. Until it does, it's perfectly valid to say it hasn't proven it can and to assume it can't.
Some day, maybe they could?! But their current business is selling short term office space leases. They have massive liabilities in their long-term leases. If Uber (an absurd business in its own right) bought all the cars and paid their drivers salaries, that'd be a closer approximation to what WeWork is doing. It would be just another taxi company, and worth at least an order of magnitude less than it is today.
WeWork only controls pricing on the customer side, and office space leases are way more cumbersome than the Uber driver contract (I shudder to think what that looks like).
Tech companies are valued at higher multiples because software doesn't deal with scarcity. It costs Microsoft virtually nothing to sell an extra copy of Windows. So each extra sale is pure profit. WeWork sells OFFICE SPACE—something with real world scarcity, and each additional sale / customer they get has very real costs and overhead associated with it.
I suspect that the value is in the brand, just like with the Uber or AirBnB. Making a booking software or mobile app is not such a big deal but they are called tech companies for some reason.
I feel like you didn't read the article or being purposefully dense.
Also I wouldn’t call it pivot, their users even don’t have to notice a thing. They can do it concurrently. Pretty much like McDonalds owning some of the restaurants and providing franchises to the rest.
If McDonalds is so easy, how come everyone else isn't as globally prevalent? It's not easy. It's competitive as hell. It's a completely different model.
But you're not making arguments in good faith, you're just being intentionally dense.
1) how this effects the position of WeWork as a tech company(or not)?
2) Is there a law or something preventing them from changing their business model? Maybe this is “phase 1” of their grand plan to build a brand, optimize the process of opening new locations etc and they will switch to “rent your empty property under WeWork brand like renting from AirBnB, just comply with the requirements just like Uber drivers’ cars have to comply” business model?
1) They've accrued a lot of large financial obligations in their quest to secure office space. There's a lot of concern that these obligations will only grow worse due to the terms of the contracts, or an economic downturn.
2) Their relationship with their CEO seems to have veered more in favor of his personal benefit than sound corporate governance.
At WeWork tech is so secondary to their requirements. Sure, they can make it more and more required -- just like fridges do these days. But for WeWork the tech is about as necessary for you to derive value as a touchscreen on a fridge is necessary for you get get value from the fridge. _Just because it relies on technology doesn't make it important to it_
Zoning, perhaps?
A great example of this is Facebook. For someone to sign up and start using Facebook, it really doesn't cost Facebook anything. Facebook probably only thinks about scaling in terms of orders of magnitudes.
Uber/AirBnb and other double-sided marketplaces debatably meet this definition. For these types of companies, the marginal cost of a new customer is $0. But these types of companies also have to onboard providers. Much of this is onboarding is automated but it can still require human intervention. Still, it's very cheap to onboard, there's not really any sort of capital expenditure that goes into scaling the provider side.
WeWork obviously has a giant marginal customer cost. This is the fundamental criticism of their business model. Lots of successful businesses like Amazon can do this but it appears like WeWork doesn't have any sort of scales of economy. For Amazon, you can put more products in the same warehouse, you can build warehouses closer to customers for faster shipping. WeWork pretty much can just open new locations with the same model.
Note that WeWork is trying to expand into other markets like gyms to get some of these benefits but whether or not this is a scalable business model is debatable. So far, it hasn't worked and there's not a great indication it will.
You mention that WeWork could change its business model to get better scalability. Of course they could change it but so could a well-funded startup. So could AirBnb. Frankly, it's a hypothetical that isn't proven out. Basing a valuation on a what-if that isn't a natural extension of what they're already doing is extremely risky. To do what you're saying, WeWork would basically have to start from 0, maybe with some expertise about what customers want. AirBnb could immediately launch the same service with 10,000 locations by leveraging their existing hosts.
How they got a $50B valuation seems deceitful and ridiculous. They conflate using technology and modern appeal with technology business models. Currently, WeWork does not have any business model that could be considered $0 margin customer cost. Maybe one day they could find one. Probably not.
What about pre-merger DirecTV?
(In the former case I think it pretty much meets the definition but is not traditionally thought of in this way; in the latter I think they are very dependent on low-margin but non-zero scaling but clearly tech-enabled in the same Netflix has become)
Ticketmaster has a $0 marginal additional customer cost. That's great. That's the model of a tech company. The real question is where the ceiling is for scaling event offerings. I don't know if Ticketmaster has enough dominance in negotiation to basically get listings for free and 100% penetration of events. I'm sure Netflix doesn't get shows/movies for free. Most tech companies have a ceiling. Generally, that ceiling is defined by the market.
If ticketmaster already has monopolistic dominance in event tickets, there's not really a way to increase the size of the business. At that point for valuations, you start using a discounted cash flow model with some risk built in for the competition.
The reason companies like Facebook and Google show enormous multiples is because the size of their market is basically the internet. When pricing the stock, people expect Google and Facebook to continue growing. Once everyone is online, the multiples should decrease substantially.
Tech seems to be branding for modernism, software, and rapid low-cost expansion. Lots of businesses are scalable in some sense. There are a lot of MacDonalds out there. I would say the primary difference is adding a new customer costs virtually nothing. This seems to be a relatively unique property of software companies.
Plenty of companies use extremely impressive tech to manipulate atoms, but, by convention, we call the ones that manipulate bits “tech companies.”
Now you might point out how WeWorks' shell corporations for each property might act similar, but that's big landlords and banks getting screwed over when WeWork goes under, not individuals. Though individuals might get screwed over in the stock market by giving money to the founders and investors through IPO, but at least if they'd actually read through the hype before investing..
WeWork is different because its primary day-to-day operations consist of purchasing/renting/renovating/managing offices. Yes it could pivot to an Uber model in the future, but we are evaluating all of them as they stand today.
One reason, to avoid the scrutiny describing their actual business would expose them to more scrutiny, e.g., Uber is transportation company, not a software company.
Once the BBC described Google as an "American advertising company", now that's cold.
Uber is not a bus company. It does not own a gigantic fleet of cars or large depots to store them in, nor does it employ mechanics and cleaners to tend to them, or have long-term contracts for gates at stations around the country.
Uber is a tech company because it really only owns software and lawyers. The cost of bringing 10,000 new vehicles on the road is minimal -- they simply increase the incentives to drivers in that area.
Likewise, Air BnB is a tech company, for the same reason.
WeWork, however, is simply an office real estate company. Its business model is closer to a hotel chain.
Ironically, if Uber achieves its self-driving dreams it will have acquire all of these things.
> Narrator: Narrator is a full-service data team for startups of any size. The team behind Narrator built WeWork’s data infrastructure, and wants to target more startups as early customers. The company says they’re generating $91,000 per month with this business model, but they aren’t stopping there. Narrator wants to build as a cross-company universal standard for data and grow out this library of shared analyses. This strategy allows the company to repurpose the analyses they produce and offer it to new customers.
[1]https://techcrunch.com/2019/08/20/here-are-the-82-startups-t...
[0] https://techcrunch.com/2019/08/16/y-combinator-backed-narrat...
>In 2017, Neumann declared that WeWork’s “valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.” He has long maintained that categorizing WeWork as a real-estate concern is too limiting; it is a “community company” with huge ambitions. “We are here in order to change the world,” Neumann said that same year. “Nothing less than that interests me.”
>it is a “community company”
>“We are here in order to change the world,”
Can some explain to me what renting out shared workspaces has to do with any of this?
Devil’s advocate: Amazon has dinky margins and was unprofitable for many of its early years. Physical servers have “wear and tear”. But they are a winner because they have developed competencies and efficiencies that let them rent out infrastructure that fast growing companies would rather not own and manage. Could WeWork be like AWS for office space?
Looking at their open positions they have teams around evaluating, visualizing and instrumenting spaces. In addition to the flexibility to scale up and down. There’s a lot that’s sketch about their company structure but if companies are going to outsource say payments to 3rd parties like Stripe, why wouldn’t they do it for office space which is a huge PITA?
Because a company calling itself "tech" and "sophisticated" automatically gets higher stock market valuation by unscrupulous investment analysts.
Thus, a company is priced higher the more techy and sophisticated is its image.
Have you heard of Chinese companies' price jumping just from them adding word "blockchain" or "o2o" to their name? This is what it is.
https://www.independent.co.uk/news/business/analysis-and-fea...
Though everybody runs to point fingers on "oriental mindset" of some fund managers, few notice that this happens in the West in a form that is even more extreme.
A perfect example of that is a company called Netflix. They sell videos over the internet, but they are priced a whole ∞ more than companies selling videos on physical tapes
That is true - a company selling software can acquire new customers, and spend MUCH less doing so, compared to traditional companies like McDonald's.
The problem arises when a "tech" company is actually much closer to McD, than actual tech companies. The assumption of exponential rise and cheap scaling falls away, and analysts start coming up with much more conservative valuations.
I don't see the distinction you're making.
Personally I am bearish because I don't think they can hire the engineering talent to pull that off. They should've gone on a tech hiring spree long ago if that was their intention but I know of no prominent tech leaders who work there.
They've been hiring (and acquihiring) like mad in NYC for the entire year. They just took over the old Spotify office near Union Square as their new "tech HQ," and all of engineering sits there now.
I wonder how close they are to McDonald in business model.