Company Spotlight

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Company Spotlight: WeWork

WeWork is one of the world’s largest coworking operators. In July 2017, it was valued at a whopping $20 billion, making it the sixth most valuable startup in the world and the third-biggest startup by valuation in the U.S., after Uber and Airbnb.

There are even industry rumors its valuation could soon double to $40 billion – but some analysts question whether it’s just a traditional real estate holdings company in disguise, as opposed to a true Silicon Valley unicorn.

WeWork’s co-founder and CEO Adam Neumann is bullish when questioned about the true value of his business. In a recent interview for Wired magazine, he listed a number of prominent investment firms, including the likes of Benchmark Capital, Fidelity Investments, Goldman Sachs, Harvard Management Co., Hony Capital, JP Morgan, T Rowe Price, and Wellington Management.

In August 2017, WeWork also got a $4.4 billion cash injection from SoftBank and reportedly raised an additional $1 billion in debt from the Japanese giant 12 months later.

“When the best investors all agree on the same company, trust me that they’ve done their math, they know our returns, they know exactly what Wall Street pays when a company goes public, and they are sure that they are going to get a return,” stated Neumann for Wired magazine.

A brief history of WeWork

The first WeWork space opened in Manhattan in 2010. Now, an estimated 210,000 members flock to its 453 office locations in 87 cities around the world.

Some industry experts question whether WeWork’s rapid growth is sustainable, especially considering the amount of cash the company burns to fund its expansion. Last year, WeWork “logged a net loss of $933 million and it is on pace to easily surpass that figure this year,” according to the Wall Street Journal.

Whatever your opinion, WeWork’s rise to dominance in the coworking industry has been nothing short of meteoric. So, what’s the story behind its success? 

On paper, WeWork’s business model is relatively simple. The U.S. company provides shared workspaces and offices to freelancers, startups and, increasingly, established enterprises. It takes on large commercial leases, revamps the space in its signature style, and then rents out the space in small chunks and on a flexible basis.

WeWork members get access to its global empire of spaces. There’s a heavy emphasis on the aesthetics of each space, which are carefully designed to bring in natural light and encourage collaboration and synergistic growth.

WeWork claims it has used 12 million square feet of glass, 750,000 square feet of carpet, 8.8 million square feet of white oak flooring and 9.6 million pounds of aluminum between 2010 and 2017. It’s also installed 12,000 phone booths.

A WeWork space offers a range of traditional coworking amenities. This includes super-fast internet, breakout areas, printers, free refreshments, onsite 9-to-5 staff and private phone booths. There is also a vast range of events, from lunch and learns to networking events, or fitness and wellness classes.

It’s cookie-cutter coworking at its very best. But WeWork is also diversifying and extending its reach beyond the flexible workspace arena.

A corporate shift

WeWork counts 20,000 companies as its customers and its fastest-growing demographic are businesses with 1,000 employees or more. In fact, 22% of Fortune 500 companies are currently WeWork members, including Microsoft, Salesforce, Dell and Deloitte.

WeWork also manages exclusive offices for a handful of its large corporate clients. IBM, for example, has 40 desks in a dedicated space in a Chicago-based WeWork building, which is officially called the Cognitive and Advanced Analytics Garage.

According to WeWork’s 2018 Economic Impact Report, 40% of enterprise members chose WeWork because they wanted a more creative and entrepreneurial environment and 30% of enterprise members have WeWork offices in multiple cities.

Facebook is also jumping on the WeWork bandwagon with gusto. WeWork’s two upcoming eight-story office buildings in Mountain View will represent its largest space, with a combined floor space of 450,000 square-feet. Facebook will be the sole occupier of both spaces, despite WeWork’s original plans to lease one building to Facebook and leave the other for smaller clients.

Next step, WeWorld domination?

WeWork plans to take its business models for workspaces and extend their ethos across multiple industries to create a generic and all-encompassing “We membership”. This will give members access to far more than just its shared workspaces.

For example, WeWork has already launched two “WeLive” locations in New York City and Washington, D.C., where members are part of a “co-lisiving” venture with furnished apartments, access to a gym and spa and other communal spaces. There’s even a “WeGrow” for-profit school that promises to provide a “conscious entrepreneurial approach to education”.

WeWork has also started to buy commercial real estate, including New York City’s iconic Lord & Taylor building, which it plans to turn into its global headquarters. In April 2018, WeWork also took a £58 million stake in a site in London’s Devonshire Square, which is its third property acquisition in the U.K. capital.

WeWork has also been embroiled in a poaching sage recently. Reportedlyit is “offering commercial real estate brokers worldwide a 100% commission on the first year of rent paid by any tenant who switches to WeWork from a top competitor and signs a lease by October 1st. Tenants also get half off the first year’s rent if they sign for at least 12 months.”

Who knows what steps WeWork will next take to cement its dominance in the coworking industry, wider commercial real estate sector or an as-yet-unknown range of sectors and industries it also may be eyeing.

However, before it gets too carried away, WeWork may need to get its books in order. While it is starting to show “early signs of financial improvement” according to a recent report in Bloomberg, critics still say the company “is overvalued and spends with abandon”.

It’s an interesting time for WeWork and while its sky-high valuation is likely to come back to earth at some point, the company may also manage to attain entirely new levels of cross-sector dominance.

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