Odd Lots - The Bullish Case for WeWork

Episode Date: July 22, 2019

Of all the “unicorn” startups in recent years, perhaps none induces more skepticism than WeWork. Thanks to its gigantic losses and unusual business practices, many view it as the ultimate emblem of Silicon Valley irrationality. But there are some bulls who say the company is misunderstood! On this week’s episode, we speak with Sandy Kory, a managing director at Horizon Partners, about why he’s bullish on WeWork and how it’s misunderstood by so many people.See omnystudio.com/listener for privacy information.

Thanks for listening to Oddlots. Follow the show on Amazon Music for more future episodes or just ask Alexa, play the podcast, Oddlots on Amazon music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, 2019 has been a lot of interesting things that have happened in markets so far this year. But one of the defining characteristics, I think, has to be that it's really been the year of the IPO. or at least IPOs have been a big story in a way that they haven't been in a long time. Right. And not just any IPOs. We've had quite a few tech company IPOs, right?

So we had, let's see, Uber, Beyond Meat, both like relatively, I guess some people would call it unsuccessful giving the share price performance since then. Well, Uber, I guess, has been a little bit unsuccessful in the fact that it didn't have a pop. And Beyond Meat is unsuccessful in the other direction. in the sense that it soared to an insane degree since it went public, implying that the company left a lot of money on the table. Although, to be honest, you know, when stocks soar, I get this argument that a company left a lot of money on the table, but I doubt anyone's really complaining because they're all crazy rich now.

Oh, yeah, you hear that all the time that the underwriters messed up or something. But, yeah, I doubt anyone who's standing there watching, like, the listing price watching their net value go up is actually a problem. upset about that one. Yeah, like, are they really that upset? And they can always sell more stock at a secondary if they want. But yeah, as you said, you know, like we had some like really marquee IPOs this year already. Uber being the most notable, the largest at the time startup in the world or private company in the world, I think, or close to it. It's kind of fizzled. But actually, it's been a pretty kind of euphoric year now between Beyond Mead and Zoom video and

Crowdstrike was another recent one. There's a number of companies that have found very enthusiastic receptions on the public market this year. Right. And I believe there's another one that's sort of wading in the wings. And this is a, you know, even compared to Uber, this is a really interesting company that sort of generates a lot of very different opinions, let's say. Yes. So you're talking about WeWork, which is the famous or maybe infamous commercial real estate. company that's gigantic. I don't know how many tens of billions it's worth right now. I think maybe just under 50 billion. But, right, they're known for taking out these big leases from building owners and then

re-renting the space out to startups and it's a hip office environment and there's a lot of beer. And the company is incredibly controversial to say the least. There have been numerous profiles written of its CEO who himself seems to be. to be quite a character like many these startup CEOs are lots of people extremely skeptical that it's going

to be a long-term money-making business. But after Uber, it really is the gigantic one sort of sitting out there waiting in the wings. I don't think anyone knows exactly when it'll become public, but at some point, it almost certainly will have to file for an IPO. I like

that your description of WeWork Office Space is there's a lot of beer. I think that's like a big thing like of what of it's office space but it's supposed to be cool and startupy and start that means beer taps and cold brew coffee on tap and stuff like that but i'm just going to point out you've already sort of betrayed a slight bias because you called it a commercial real estate company and of course the big debate over we work and its valuation and its future is whether or not it's actually something more than a commercial real estate company because if you're attaching a 50 billion

dollar evaluation to something, you know, it's probably going to have the words tech in it or some sort of like all-encompassing lifestyle brand. And that's the huge debate currently raging. Right. Or it's got to be a platform in some way to justify that. So the interesting thing about we work to me is, you know, if you're talking about Uber, there's very easy to come up with the bull in the bear case. You say, okay, the bull case is that sort of on-demand mobility. is going to be gigantic and it's barely even started and that there's all other kinds of businesses that they can layer into their ride-sharing business like food delivery and other logistics things. And then the bear case is, well, they're losing a lot of money and you can have a real

debate. And there seems to be very legitimate two sides to it. And what's really striking about we work is it's extremely rare to find a bowl or even a partial bowl or an optimist. It's universally I think people are skeptical about this company. And that's pretty unusual because usually there's someone or a good contingent that says, no, you don't really get this. Right. I mean, someone is clearly giving this company money, right? So you know bulls must be out there somewhere. They're just not very vocal, I guess. So the good news is we have a bull, or at least a modest bull. We found one. We're going to hear the less pessimistic case. on WeWork. He tweeted about it a few weeks ago, and it was like, it was the true unicorn,

someone saying something positive about WeWork on the internet. The real unicorn. The real unicorn. And so I knew we had to get him on the show. So without further ado, let's bring him in. I want to welcome to Oddlot Sandy Corey. He has a managing director at Horizon Partners out in the valley. He is a Silicon Valley investment banker. and we're going to be talking about why perhaps the doom and gloom story about WeWork is overrated. So, Sandy, thank you very much for joining us.

Thanks a lot for having me. So, Sandy, I mean, as I sort of alluded to, everyone kind of knows the pessimistic story about WeWork. And it really is relentless. And there's so many sort of classical red flags that cause people to think that this company will eventually fizzle or that it's a how you of cards. They come up with their own bespoke metrics of how to measure their business. They have something, I think it was called community-adjusted EBITDA. They lose tons of money. Their CEO is all kinds of eccentricities. They announced recently they're launching a new off-balance sheet vehicle to buy buildings, which will then be leased back to Wework. And somehow that's supposed to make the buildings more

valuable. The CEO had some questionable related party transactions because he owned some buildings that was questions about whether WeWork was getting a fair deal or not in renting them. It's just like the red flags with this company, which has become ubiquitous and cities all around the world, are so numerous. And that is why it seems like almost nobody is willing to step up and say, wait, there might be something here. This might be really something valuable and growing. So, Sandy, what is it at its core that people misunderstand about WeWork? Well, thanks a lot, Joe. It's a fascinating company, and it certainly is polarizing. And I think, you know, I like to try to take a historical lens and looking at some of these businesses. And a lot of

the critiques that you are presenting, I think, have also been applied to other companies over history, you know, that have been misunderstood. You know, in the 80s, there was this wacky financial metric that was being promoted by operators in the cable industry because those businesses weren't really making money. It was called EBITDA, and people thought that was pretty wacky.

And of course, now everyone uses EBITDA as a pretty reasonable financial metric and that the cable industry really did take off back then and for many years after. So I think the bulk case with Wii work is that, look, in Q1, they release some financial and financial information. In Q1, they were annualized to $3 billion in revenue, and they were growing 100%

year every year. So I think that's the start of something that potentially could be very valuable. They're in a massive industry, commercial real estate that's very fragmented, and I think that they are in a position to build leverage in that ecosystem in a really unique way. They have a growing brand that gives them an advantage in acquiring new customers or new users. I think they have built a little bit of technology that can give them leverage. I think they're probably still just scratching the surface there.

And in fact, that might be one of the biggest bullish factors for the company, which is that if they can dig in technology, in an industry that historically has been allergic to technology, there's a big source of advantage there. So, Sandy, you mentioned this notion of we work building up leverage in the real estate industry. And Joe and I were talking earlier.

or about how if you have a valuation of this magnitude, it's usually because you have a sort of growth story attached to it, a growth story that might be a big brand, a platform of some sort or some sort of tech disruption angle. So talk to us about how exactly we work is disrupting the real estate industry and how exactly are they building up leverage within real estate? Sure. Well, I think on the leverage aspect, it's mostly a function of scale. And I think that, you know, come to cross-business, you know, when you have massive scale, it gives you leverage to get better economics and to push around suppliers and vendors and so forth. So I think that's a path that they are, you know, kind of taking that that should pay off, you know, with more and more leverage that can kind of squeeze into better economics in the future. Look, the core disruption, I think, is just that they're, you know, they have a better a better user experience for their customers. And so, you know, and that starts with the flexibility of the product, which I think, you know, on the one hand, it looks, hey, it's just month to month, what's the big deal? Well, you know, historically, that the, you know, one of the key aspects

of consuming commercial real estate, you know, renting an office is a long-term commitment that can be very painful for many, many businesses. And so I think the flexibility aspect is very important. And then it also gives them a chance to reorient their business around customers, ideally, you know, using the internet and technology. And that can have really powerful implications in how they operate their business and how they can build a competitive image over time, you know, a Netflix or some of the other great kind of disruptors that have built service layers, you know, leveraging technology and the internet. So again, you know, in the beginning, Tracy was talking about how to achieve such a big valuation.

the idea is typically you have to like, oh, we're a tech company or we're a platform. But it kind of sounds like what you're saying is, no, we work is just a really well-run, innovative landlord, in a sense. Well, not exactly. Look, it's a very hard business to understand. There's lots of sources of kind of misunderstanding. And, you know, look, one is valuation. So you can find a valuation headline of 47 billion.

But that's a, you know, kind of basically. based on a preferred instrument, that soft bank, which is kind of underrated in the complexity of their financial engineering. So they came up with that as part of the last announced round. But then I think the real valuation for the company is more like $20 billion, which is the valuation where kind of sellers got. So I think it was a mix of common shareholders and early preferred who sold in into a round a few months back, and they had a $20 billion valuation. And so, yeah, look, it's a great question. Is this a tech company or not?

Does it deserve a software as a service revenue multiple? And I would say, no, we're in a market where SaaS businesses are easily getting 10, 20 times revenue. And so I don't think that is necessarily warranted here for Wii work. But is it worth maybe five times, seven times, eight times in this hypergrowth mode? I think it can be. So you mentioned the magic word hyper growth. of course, I guess the key to building up leverage in real estate for WeWork is growing so quickly

and amassing so much market power that you sort of basically just beat out competitors. Talk to us about this notion of hypergrowth. How long is it acceptable for a company to not post any profits, you know, for the sake of building up its market share? and how vital is funding to hypergrowth? Well, that's a great question. And I think, you know, WeWork is kind of a running experiment on how far, you know, you can go. But I do think that, you know, you got to keep the context in mind, which is that we are in a world where money is historically cheap.

And access to capital for hypergrowth companies is, you know, pretty open. So I think, you know, you can look at we work and say, hey, this couldn't have existed 20 years ago, and it's kind of, to me at least, you know, obvious. Lots of these businesses, like an Uber or a Lyft, you know, depend on the access to low-cost capital, and so we work does as well. You know, can they continue to grow 100% well into the billions of revenue? That might be difficult. I think it's, it is hard to get too deep into the finances because while they do release some financial formation,

there's a lot that we don't know about the kind of cohort, economic. and the economics by geography. And so I think the bulk case is that in WeWork's more mature geographies, the United Economics are pretty good. I think that's also the bull case for businesses like Uber or DoorDash as well, and that they are investing a lot in new markets, and that is kind of the big cash depleter. So if in their mature markets, we work as hemorrhaging cash,

then that's obviously pretty worrisome. But my guess is that looking at more mature markets like a San Francisco, looking at buildings that they've been, you know, kind of leasing out for a period of time, the economic economics are pretty good. And I think with scale, you know, that customer acquisition cost advantage gets kind of more and more meaningful. They also are able to kind of squeeze out more efficiencies, you know, from various suppliers. And back to kind of the leverage point, once they are renting, you know, 50% of a building

from a landlord, the landlord might need them more than we work needs the landlord. and that's just on a building-to-building basis. And I think kind of similarly in a geo area, we work can have a lot of leverage by having multiple buildings with various landlords. So I think it's an open question just how much better economics they can extract from suppliers. But I think they certainly can, and they do.

I mean, they've said this, that they typically get their landlords to pay 90% of build-out costs versus 70% industry average. that's an advantage. And then look, on the flip side, they still need to innovate with their user experience, you know, and their brand, you know, and kind of the social aspect that they offer so that they don't get caught in a price war. You know, certainly the bare case on an Uber or a Lyft is that, you know, they're selling a commodity, they're in a price war, where are the

margins that we're going to come from. And, you know, with WeWork, you know, that the better the user experience they can offer, hopefully, you know, enabled by more and more technology, you know, they'll be able to command that kind of premium pricing. And I think, you know, one of the cases of skepticism is looking at, hey, you know, the average member is only getting, you know, 50 square feet and they're paying, you know, $6,000 a year. That's crazy. Well, you know, I don't think it's necessarily crazy, given that what they're selling to their customers is not just space.

It's the experience in the community. And while it's easy to be a little skeptical of some of that, I do think that that we We work users are voting with their feet and, you know, seeing their massive growth and high occupancy, it does seem like they really do have that differentiated offering. Obviously, real estate, everyone in real estate wants leverage. It's a leverage game. But that can really come back to bite you in a downturn. So I'm curious, like, let's say we were to hit a recession.

The WeWork defenders is your argument that, A, they have their landlords to some extent over. a barrel because they occupy so much of their space that they could renegotiate long-term leases and be that obviously their tenants that they would take a hit, but because they offer more flexible terms, maybe they don't get as hit as bad as some other landlord. Does that the idea? Yeah, I think that's the bulk case. And I think that the idea is that, you know, like white bread consumption goes up in recessions because people are switching from the fancy whole wheat to the white bread, at least historically, you know, the flexible offering that they have will be more attractive. You know, and I think that, you know, intuitively it makes sense, especially if you're a small business. And so a lot of people say, oh, what about these small businesses and startups? You know, what's going to happen in a recession? And I think that there's, there's so many of them that even in a recession, there's going to be, you know, more than enough to keep WeWork growing. I think that they're going to be attracted to the WeWork, you know, flexibility. And I think there's been anecdotal evidence, you know, that in a few markets like Sao Paulo that they're in, where there was some, there was kind of minor recession. You know, they did see an increase in demand. So I do think that that is a powerful argument they have. And then, yeah, I agree that the leverage they have with landlords will allow them to renegotiate if necessary to get better terms. And look, I mean, I remember in 2008 looking at all these actors across the financial spectrum and thinking, ha, all these are going to go bust.

wasn't really something to be happy about, but as a kind of an amateur, you know, retail investor, I tried to make some trades to take advantage of these balance sheets that looked like they were going to blow up. But guess what? You know, a lot of these institutions survived. And, you know, it was the old, what was it, what do they say, the amend, extend, pretend. And I mean, it's nothing to be, you know, too cheerful about. But I do think that we work will have that, that type of flexibility where, you know, at the end of the day, a lot of these landlords have their own creditors and they're not going to be looking to evict a major tenant. And what are their alternatives in a downturn where there aren't necessarily as many tenants, you know, kind of

queued up for big space. So I think, I think that, you know, some of the biggest sources of kind of misunderstanding with WeWork are, yeah, this vulnerability to a recession. You know, look, I think we're all still scarred from the financial crisis of 2008, 2009, you know, which is reasonable given how brutal it was, but I think that even if there is recession, it's very unlikely it'll approach anything like that. And I think we work is actually pretty well positioned. So I think that that is, to me, actually kind of one of the weaker elements of the bear case. I think kind of there's an adjacent part of the bear case, you know, which is, hey, they're, you know, and if you look at, you know, Finn Twitter, people call it a Ponzi scheme, you know, hey, they've got these long-term

leases and long-term leases, you know, short-term rentals, that's crazy. And it's like, well, Right. Liability mismatch. Yeah, a lot of businesses have done that. I mean, that's the ESPN business model. And ESPN is not doing great today, but historically, you know, they would sign these long-term deals with sports leagues to pay them exorbitant rights fees. You know, when they would sign them, you know, people would say, oh, that's crazy. But guess what?

You know, they made a lot of money. And there are cases where, you know, owners of assets prefer, you know, the certainty of getting paid and will forego some of the short-term upside that you can. can get when you take risk. And so I think we works path there is actually pretty common. But a lot of folks, I think in the real estate industry, you look at that and think it can't last. But in fact, I think it's actually been a path that's worked pretty well for a lot of businesses across industries. So, Sandy, I have a different sort of bare case concern, I guess. And I think when it comes to a lot

of sort of disruptive companies or unicorns, I think there's a tendency to think that they all come in to a market, whatever it might be. know, cars or in this case real estate, they come in, they do something different, they disrupt the market, and that that business model can continue forever and that the market basically stays static. And of course, what tends to happen is the market actually adapts quite quickly, usually to a lot of these new business models. And you also get competitors at the same time. So in the case of WeWork, you know, they come in with these short-term office rental offers. they come in with, as Joe puts it,

an office space with lots of beer available on tap in this community atmosphere. Is there not a risk that by making those two things so popular in the real estate market that those things start becoming the norm and we work basically sort of arbitrage as its own edge out of the market? Because we've already seen some other companies like Regis, for instance, start to sort of follow this model. You know, they've redone a lot of their office spaces to make them look more like WeWork kind of offering.

So is that a risk? That's a great question. And I think it is risk. I think that, you know, we work, you know, and I think, you know, you asked that question, I think, in a great way. And it really is, you know, relative to their industry peers. And so, you know, I think one of the biggest sources of criticism in Silicon Valley of WeWork is, hey, there's not much technology or there's no technology. Well, you know, it's relative. WeWork isn't competing with Google.

If they were trying to compete with Google and search, they'd need to hire a million of the best engineers on the planet. But we're talking about an industry that is historically allergic to technology. And so WeWorks bar wasn't as high, I think, to innovate and offer a better user experience. But yeah, that's right. Can competitors come in and offer comparable experiences and compete on price? And I think Regas, I mean, I think their brand spaces, is kind of an attempt at that.

There's also industrious, which is a well-funded startup, that's taking a little bit of a different path, but it's also pretty similar. And so, you know, you kind of get this attack of the clones, right? Which, you know, that's still, I think that was referring to the old

kind of laptop wars when Compact came out of nowhere to have a giant business in a couple of years, but really got beaten up by clones. So what's going to happen with the WeWork? They're going to have to execute. And to me, that's the biggest question,

is can they execute and, you know, can they, you know, focus on a few key priorities and build technology that can compound to create more and more advantage? They've got more capital than competitors. They've, I think they've hired, you know, arguably, you know, better folks at technology and in engineering. So I think they've got the ingredients to do that. I'm not sure if they are. I just don't know. But I think that to me, the most compelling bear criticism is that, while, you know, the CEO and the leadership, you have to give them a ton of credit for building this company so fast and doing some pretty amazing things. They haven't shown really a kind of a consistency around prioritization. And so when you look at some of the great operators in tech like Jeff Bezos, they've been super focused.

And that's kind of created a culture of operational rigor, financial rigor that has kind of percolated throughout all the different lines of business at a company like Amazon. And so for WeWork, I think they're getting really good people there. but that doesn't mean that they're going to be able to execute and build software and build financial discipline because the growth inevitably will slow down and they will need to trade growth for profitability and they need to be able to have evidence of that as they approach the public markets. So it's a great question. I think right now, their brand does still give them an advantage. It might be, you know, look a little thin, but I think a lot of times brands, you know, can look thin if you look at them from a certain direction.

On the other hand, I do think that the average non-expert potential customer in this space would go for WeWork over a spaces or an industrious or another brand, because WeWork does have that brand. But it doesn't necessarily last forever, and they really, as a company, are going to need to be able to commit themselves towards focused execution to innovate and use more technology to build that differentiation. So to me, that's really the multibillion-dollar question is, you know, can they execute?

Just so people are clear about some of the questions regarding this company's ability to focus or engage in focused execution. In 2017, it was reported that WeWork had made an investment in a company called WaveGarden, which is a company that makes wave pools. I'm reading from the New York Business Journal, Spain-based Wave Garden is touted as an engineering company specialized. in man-made lagoons that can be used for recreation surfing in various water sports. Other things that the company has dabbled into, I think it has like a place where you can live. They've opened up a talked about launching a grade school. So that is indeed, I mean, it's almost like an understatement to ask whether this company

really knows how to do focused execution. Joe, I can't believe you don't understand the synergies. The strategic value of wave pools. I just don't think you've got the vision. I don't have the CEO, Adam Newman. I definitely don't have his vision. And there have been numerous profiles of him, Business Week, our publication here did a great profile. There was just a New York MAG profile of him.

Basically about, you know, he's like, oh, we're not a real estate company. We're a change the world. You know, like one of very sort of classic California, Silicon. Valley style of talking about changing everything. I think to most people, it feels like a pretty big red flag. Yeah, look, I mean, I guess the, you know, the bulk case is all publicity is good publicity. But yeah, I've read a lot of the similar things and it is a little scary. You know, it's really hard, I think. And this is a really kind of an underappreciated phenomenon. when you have a startup CEO to have so much success so quickly, I think it's really hard to

not learn the wrong things, or at least some of the wrong things from success. And so that might be happening here. You know, I hope that the persona that is, that you see when you read these pieces, you know, I hope that's kind of an ironic, you know, and I hope he's got some people around him who are really sharp and who will question him and aren't just going to say yes. I think they've got a strong CFO. I don't know any of the C-level folks personally, but I think they have a very strong, disciplined CFO. That's really important. So someone has to call the CEO on some of the nonsense, because I can't defend the nepotism. That, yeah, that to me, if we're talking about red flags, that's the one that I would be really focusing on, because it's terrible for culture

when people are being promoted and given responsibility for the wrong reasons. Now, I don't think I've got enough information to really judge if there's something that's untrue. whole word going on there. But I, you know, back to say like a Jeff Bezos, I mean, it would be ludicrous for anyone, you know, for one of his relatives in Amazon to get promoted or to get something just because of their, their last name or their family. Like, everyone would realize that would just be kind of anathema to their culture. So I don't, I hope that this is more of just kind of silly stuff that percolates in the media and is kind of misunderstood. But, but it's also hard because you can look at Amazon and say, well, what about Amazon, you know,

and their focus. I mean, AWS, what the heck did that have to do with retail? And so we work is starting, you know, a school business and a this business and an ad business. And well, you know, I think within reason it can make sense to try new products and be innovative. And so, you know, we work, I think actually has in many ways done a great job moving quickly. They've been very aggressive on M&A. I've seen them kind of behind the scenes on some deals. And I think they're actually pretty savvy as far as moving quickly. They also, I think, are working with a lot of tech startups as a customer.

in ways that I think are pretty enlightened relative to most bigger companies. So their kind of ability to move fast can be a real asset. At the same time, if they're unfocused and priorities are shifting constantly, that's the thing that worries me the most. But I think they very well might have a handle that this is an issue, and they might be taking kind of prudent measures to build that culture of operational discipline. If they can do that, then I really think it's a business that could make SoftBank look really smart. But it's to me that question around execution that is really the one that I would be studying the most if I was trying to make a trade on the business.

So there's one other big red flag that a lot of people have focused on, aside from the sort of Silicon Valley cliche type CEO who wants to change the world, although I guess this other red flag is slightly related. But the community adjusted EBITDA, which has already been mentioned a couple times in this conversation, this. This is the thing that we work trotted out. EBIT DA is basically earnings before interest tax, depreciation and amortization, and community-adjusted EBITDA stripped out a bunch of costs, a bunch of we-work costs like marketing, construction. Basically things that WeWork said were going to go away once it reached some sort of maturity level whenever that might be.

How can investors take a company seriously when it not just... unveils adjusted earnings, which are, as you mentioned, you know, fairly regular in the financial industry nowadays, but when it unveils adjusted earnings under the umbrella of community adjusted EBITDA. Because I think to a lot of people, that just sounds like the company is sort of not taking itself seriously. That's a great question as well. And I don't know the strict definition behind that term, but it's really important that they are very serious and credibility building in their use of financial metrics. I think it's such an unusual business that it is reasonable that they might have some new metrics that they're sharing. Even when they go public,

and the rumor is that they've already filed, they will have to be very transparent around, what does that metric mean specifically, and what does the business look like under the, you know, under more conventional metrics. So that's really important. You know, they did a debt offering last summer, and that, you know, and so you can, you know, buy, I believe, you know,

buy some of that debt on the open market. And it's not priced like the business is about to go bust. Now, it's not priced like treasuries. There's some risk. But I think that is a good way to look at how does the market think about the business. And I think the, you know, the yield on that debt is 9%.

So it's not the most high grade. But I don't think the, folks that are looking closely at the numbers and really have seen the most. I don't think they're showing, you know, too much concern about that. But certainly, you know, when they are public and filing as a public company, they're going to have to be really rigorous in their metrics, and they're not going to be able to be kind of cute and cheeky about their differential metrics. So, yeah, I mean, I'm with you on being pretty curious, if not skeptical, on how they're using that metric. Sandy, Corey, really appreciate you coming on.

the Oddlots podcast. I actually think, I don't know if I would say I'm a WeWork Bull after talking to, but I feel like I have a little bit more of a grasp about why the whole thing might not be some House of Courage that's on the verge of inevitable

collapse. I appreciate your contrarian take, and thank you for coming on. Well, thanks a lot for having me. I appreciate it. Thanks, Andy. So, Tracy, are you convinced? I mean, this is such a cop-out. I think

there's some value there, but I'm not necessarily convinced about the valuation. I mean, after that conversation, I sort of come out thinking that we work is sort of a leveraged play on the health of the wider economy, but also on free-flowing liquidity from venture capital funds, which is sort of like a double risk to me. Yeah, I mean, it seems like the way I think about it after talking to him is that if they, and I guess it kind of goes back to the focused execution, but the basic offering of here is a very nice office space that has a pleasing aesthetic, that's very flexible and easy to get in and out of, it's not a bad product to offer. You can see the appeal and that if they can just make that brand really synonymous with

good office space, and we've all been to most offices across New York City or whatever, excluding Bloomberg, which is fantastic, but most offices are very boring and the lighting is bad and they're sort of dreary. So if you could have this sort of very good aesthetic to an office and scale it up, you could see the appeal. And you could see how that might be something that could scale up. It's definitely a product. I think again, like the danger in this case when it comes to the valuation is basically when this like huge story starts getting attached to what. is actually a relatively simple product. And the CEO is actually quite keen on that story. You know, the things that come across in the Businessweek profile and also the New York Mac piece is that he's this sort of self-proclaimed visionary who wants to change the world and is starting all these new other businesses in order to do that. So I think the story is sort of part of the selling point of the company, but probably also

its biggest risk. Well, and also, you know, we were talking about what would have? happen in a downturn. And, you know, you could make the argument that, you know, because they're flexible offerings, maybe they won't get hurt as bad. On the other hand, you have to wonder, like, how many of the WeWork tenants are themselves startups, tech startups, who themselves may have visions of one day selling to an Uber or a WeWork or getting a really big investment from SoftBank one day? And so when you think of like a House of Courage, you're like, how much you're like, how much is this all just a really leveraged bet on the same pool of money, the same pool of cheap capital,

the same end where you're going to sell to a Google or Facebook or an Uber or a Lyft for an Amazon. And if that sort of, if the liquidity evaporates, if one day SoftBank doesn't want to fund all these startups or keep backing all these unicorns or there is a real downturn among major tech companies, it could be due to regulation, whether that would just sort of ripple like bomb through all of their, you know, the bread and butter tenants that they have in New York City and Silicon Valley and other big cities around the world. Like it feels just in some sense, like an incredibly concentrated bet on a particular style of doing business that we've really seem to emerge over the last decade, really. It's startups all the way down. Exactly.

And all those startups end up going back to, you know, Starbucks, coffee shops, when the, when the bubble bursts, I guess. Right. Like, I have. If it's really bad, they're just going to scope out free desks somewhere with a power outlet and Wi-Fi. Forget me work. All right. Well, on that happy note, this has been another edition of the Odd Lots podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway.

And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. And you should follow our guest on Twitter, Sandy Corey. He's at Sandy Corey with a K. It was his tweets where I saw the. the Contrary and We Work case, so you definitely want to check them out. And be sure to follow our producer on Twitter, Laura Carlson, at Laura M. Carlson, as well as the Bloomberg head of podcast, Francesca Levy, at Francesca Today.

And Bloomberg Podcast has a new home on Twitter. The handle is at Podcasts. Thanks for listening.