WeWork’s Aftermath: Success as a Momentum Bet

Well, that was interesting. WeWork, which was once valued at $47bn (this was not a real number), and whose bankers touted IPO valuations of up to $60bn (this was, if anything, an even less real number) is likely to be recapitalized by SoftBank at a valuation of closer to $8bn.

This is not the outcome I expected a few months ago, when I wrote up WeWork at length. My thesis then:

• WeWork as a business not as disastrous as everyone thinks. However, they’ve obscured their unit economics, so it’s hard to say. What we can say is that WeWork has demonstrated the ability to get tenants to pay top dollar for very little space, so if — a big “if” — they can get other costs under control, the underlying business has a competitive advantage.
• WeWork’s corporate governance is weak, but mostly because tech companies’ corporate governance is pretty good; for a commercial real estate operator, it’s not crazy.
• A bet on WeWork is a bet on Adam Neumann, specifically a bet that his ability to negotiate good deals on behalf of WeWork’s shareholders exceeds his ability to negotiate deals at their expense.

I was sort of right. Per the latest updates, Adam Neumann remains a good negotiator: