MBS 665 Business Valuation of WeWork Online Tutoring

What are the key issue(s) in the case?

The trend of office sharing or in other words Co-working space has picked up big time over the last few years. There are hundreds of companies who are offering co working spaces for start-ups and freelancers. The business model is pretty simple and straight forward, all you have to do is get a big space, renovate with some technology and rent out to small start-ups and other individuals. There are few big names in the industry, like Regus, WeWork, Impact Hub and many more. In this article, the policies and strategies being opted by WeWork are being critiqued.

WeWork is considered to be one of the big companies when it comes to coworking space providers. However, on so many things the business has made bad decision and its whole strategy is something that would make one wonder. WeWork has done no innovation, instead it has copied an already existing business model, that involve acquiring big office spaces, make it tech savvy and further lease it out.

After going through the case in detail, there are so many issues that one can easily highlight. The first and the most prominent issue is the fact that the business acquire big space as compare to its competitors and that too on long term basis. Acquiring big spaces to be able lease them out is not a problem, however not being able to generate revenues and profit out of it is a major concern. Acquiring offices on long term basis will definitely give them the benefit to reduce the rent price, however at the same time it’s a big risk as in case of economic recession the business would be left with big buildings and office spaces with no tenants. According to the article the average lease period is 15 years, which is a very long period and 71% of its operating lease obligation will be due in 2024.

Few of the other issues that were very prominent in the case were the involvement of the company CEO Adam Neuman on so many occasions that were directly benefitting him. For example, many of the office buildings where the company was operating as a tenant were actually owned by the CEO Neuman. Not only he had many of his properties being leased to WeWork from where he was getting rent for number of years, but at the same time he was also able to borrow multiple loans to his personal LLS (We Holdings LLC) with a very low interest rate. On top of all this many of the business top positions were given to family members, for example Rebekah Paltrow, the wife of Neuman was not only the co-founder of WeWork but also was made CEO of the company’s education business WeGrow. Another major issue in the case is not having any corporate governance, this was so evident from the fact of having dual-class shares that give total control of the company to founders while preventing any public investors to have their say in it.

 

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How do the issues in the article relate to the topics in this unit?

The issues being highlighted in this article are all about greediness, having more power, and not having any professional values when it comes to business. Giving senior most positions to family members and limiting the public investors from having any say in the business is simply not professional at all. The professional way of any business or businessman would be to govern the matter in the public interest and not in their own interest. Similarly, it is important that whoever is being hired, should and must go through the rigorous process of recruitment. In the case if WeWork this wasn’t the case, as many high-end positions were given to the family members. The person who have valuated the business and the operations being run by WeWork are valuated properly according to the International Professional Standard, as the person didn’t include any personal biasness while evaluating the overall business instead, he evaluated the business on the gathered facts and figures.

 

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How do you evaluate the main issues in the case?

Issues are usually evaluated on the basis of facts and figures; in the case of WeWork the issues were pretty prominent. For example, IWG had a market cap of $3.7 billion that was almost 10% less than WeWork recent valuation. This issue is being evaluated on the grounds of total revenue generated and profit made by the business. From the following images its very clear that IWG had more square feet of office space as compare to WeWork. However as reported, WeWork made a loss of $1691 million as compare to $171 million of profit made by IWG. Now these fact’s and figures clearly highlight some issues. At the same time, despite of incurring huge loss by SoftBank, how come the bank was still keen on lending more money or investing more money into WeWork.

Few more issues that were evaluated in the given case are such as:

WeWork has almost 20% less usable square feet of office space as compare to the IWG, however its lease obligations are almost five times more. The company paid $5.9 million in stock to Neumans Personal LLC for the rights to the “we” family trademark, that is just insane.

 

Based on your knowledge obtained from the course, what are your comments/opinion relating to the case?

After going through the article and all the issues being pointed out, it’s very obvious that the CEO of WeWork is not professional at all, has no ethics and is not at all working for the benefit of the business, instead Neuman is more concerned about making more profits on personal level. Mistakes being made by Mr. Son and Softbank, however instead of rectifying those mistakes the bank constantly involved in making further mistakes. The company is on the verge of getting bankrupt and in case if that happens, Mr. Neuman is safe and the ones who are likely to be affected would be the general public. As for these reasons, it is very important that before buying any shares or making investments in any company it is very important to evaluate the business properly and in detail.

 

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