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Comment by philip1209 | Hacker News Reader

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 acquisitions, and focus on the core business instead of side projects. After a few years of being "boring" and improving margins, then they ostensibly will look like a much more stable investment to public markets.

[1] https://a16z.com/2011/04/14/peacetime-ceowartime-ceo-2/

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The peacetime version of WeWork that you envision already exists, it's called IWG. It's roughly the same size as WeWork but it's only worth $4.5b. Paying $5b for 70% of it doesn't seem like a good idea.

https://finance.yahoo.com/quote/IWGFF?p=IWGFF&.tsrc=fin-srch

This looks like the upper limit for WeWork. It doesn't matter how much nicer looking their offices are or if they have free beer bashes and parties, those expenses are all tiny when it comes to the bottom line of a multibillion dollar corporation.

Plus, Regus has more desks and branches than WeWork, and is orders of magnitude less expensive.

I am not a fan of the WeWork business and would bet on its failure, but I don't think that one can just say that "this company is $5 billion, so this is the cap of how big such a company in this market can become."

Just as a thought experiment, imagine that Regus ended up just straight out getting all of WeWork's assets in some sort of liquidation, and half the tenants stayed. They would get bigger!

There is a possibility that WeWork can tap into more interesting markets.

Purely annecdotal, but the people I hear about who ending up in WeWork used to be in either dirt cheap local coworking spaces, or just getting their own offices. It does feel like a "pie got bigger" sort of thing, that wasn't before captured by such a large player.

Perhaps I was not precise in my wording. With the way WeWork currently works, and its asset allocation and fee structure, I don't think expansion or more market cap than Regus is possible.

If WeWork get all Regus assets for free and half their business, sure, why not? That would be an immediate 3-4 billion dollar injection. As it currently stands, their coolness(tm) is not enough to compensate for their bloated fees and limited office space locations.

I agree with you. WeWork doesn't have strong network effects and the business model is easy to copy. There are real estate companies that each owns tens of millions of square feet of office space. If WeWork really were worth $40 billion, the companies who own office buildings could just create their own coworking spaces and rake in the billions instead.

From my experience here in Germany, Regus is in fact more expensive than WeWork. And they have worse contract conditions, e.g. no free coffee, many upsells, bad contract durations, and intransparent add-ons.

That's because Regus actually makes money, while WeWork is burning cash at an unsustainable rate in an attempt to grab market share.

WeWork can't keep it up forever. Eventually they have to raise prices and/or cut perks (probably both).

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.

Why is it a given the unit economics are positive?

It's not, but WeWork heavily implied they are and that seems to be a key part of their new strategy. Obviously many people are skeptical (including myself), but I suppose we'll find out soon enough.

Apparently the unit economics are still showing lost money because they aren't fully leased at many of their locations so their rationale is that as those locations, mature, they will fill up. Which is pretty normal in the real estate market.

But it's definitely not a certainty that the locations will fill to capacity.

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