      aswathdamodaran.blogspot.com · 2019-09-09
      · 2460d
    

Runaway Story or Meltdown in Motion? The Unraveling of the WeWork IPO

This article provides a comprehensive valuation and business model analysis of WeWork ahead of its failed 2019 IPO, identifying fundamental mismatches between long-term lease commitments and short-term rental contracts. The author argues that WeWork represents a leveraged real estate arbitrage play with embedded risks that make it susceptible to economic downturns, valuing equity at ~$13.75 billion despite initial $60+ billion valuations.

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Metrics in this report

Contribution Margin per Location

25%percent

WeWork's claimed per-location profitability excluding corporate expenses and capex

Lease-to-Debt Ratio

23.8billions USD

WeWork total lease commitments reported in prospectus, equivalent to $24B debt-like obligation

Operating Margin

12.5%percent

target

WeWork year 10 projection by author; compared to IWG historical average of 11.04% (2014-2018)

Probability of Business Failure

20%percent

Author's assumption for WeWork valuation distress scenario

Recovery Value on Failure

60%percent

Estimated fair value realization if WeWork forced to sell assets during distress

Revenue per Dollar Invested

1.68ratio

target

WeWork reinvestment assumption; compared to current WeWork ratio of $0.11 per dollar invested

Weighted Average Customer Contract Duration

1year

average

WeWork customer rental contracts, derived from revenue backlog divided by revenue run rate

Weighted Average Lease Duration

10+years

WeWork average lease commitment duration per prospectus