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Circle of Competence Issue #81

QUOTE OF THE WEEK

"The four most expensive words in the English language are 'this time it's different.'" - Sir John Templeton

FOOD FOR THOUGHT

WeWork chases new financing as cash crunch looms (Financial Times)

I hate to beat a dead horse, but sometimes its just plain fun. I've written extensively on WeWork in issues #72, #75, #78, and #79. In late July I wrote of WeWork's business:

"I simply can't understand the massive multi-billion dollar valuation (on-paper) assigned to essentially a real estate leasing company that *used* to be capital-light when it was *only* subleasing office buildings on a short term basis but then *pivoted* into actually *owning* the buildings. Isn't it morphing into an actual real estate company? They trade for far lower multiples than WeWork. Community adjusted EBITDA? Hmm. The CEO owns buildings that are being leased back to the company? Fishy. The CEO is cashing out almost three quarters of a billion dollars prior to the IPO? Huge red flag. Competitors are beginning to emerge in other markets? The bells are tolling."

The absurdity of crowds shows itself in wonderful ways, and this is one fantastic case study that just keeps giving. I've been doing some research lately on WeWork competitors (Regus, Spaces, Industrious), and it turns out that this business model is actually feasible with 1) less leverage, 2) a steadier path of growth (more akin to the RE industry and not the tech industry), and 3) a more experienced executive suite. But with Masa Son's Vision fund backing WeWork, there was little room for 1 and 2, and with Adam Neumann at the helm, well...

adventur.es' The Messy Marketplace in podcast form (adventur.es)