WeWork

WeWork is a real estate company that provides flexible shared workspaces, or co-working spaces, for technology startups, freelancers, and large enterprises. Founded in 2010 by Adam Neumann and Miguel McKelvey, the company’s core business model involves taking out long-term leases on commercial real estate, renovating the spaces with a modern, community-focused aesthetic, and then subletting them to members on flexible, short-term contracts. At its peak, WeWork was not presented as a simple real estate company but as a revolutionary tech firm and a global lifestyle brand, encapsulated by its mission to “elevate the world's consciousness.” This narrative, fueled by billions in venture capital from investors like SoftBank, propelled the company to a staggering private valuation of $47 billion. However, this tech-like valuation masked the underlying, and far less glamorous, economics of a traditional real estate business, leading to one of the most spectacular corporate implosions in recent history. For value investors, the story of WeWork serves as a masterclass in the dangers of hype, flawed business models, and valuing narrative over numbers.

The central question surrounding WeWork was always its identity. Was it a high-growth, scalable technology platform deserving of a massive valuation, or was it a cyclical, capital-intensive real estate company in fancy clothing? The answer determined whether it was worth $47 billion or a fraction of that.

When WeWork filed its prospectus (S-1 filing) for its planned IPO in August 2019, investors got their first detailed look under the hood. What they found was alarming. The document was a treasure trove of red flags, prioritizing a grand, abstract vision over financial clarity. The filing was dedicated “to the energy of we,” a sentiment that, while perhaps inspiring, has no place in a financial disclosure. More concretely, WeWork introduced a creative accounting metric it called “Community-Adjusted EBITDA.” This metric conveniently excluded core costs like rent, construction, and marketing—the very expenses central to its business—in order to present a more favorable, albeit fictional, picture of its profitability. To a seasoned investor, inventing your own profit metric is a giant red flag, suggesting the standard ones (GAAP) tell a story the company doesn't want you to hear. The S-1 also revealed complex corporate structures and multiple instances of self-dealing by its co-founder, Adam Neumann, further eroding investor confidence.

Once the charismatic narrative was stripped away, the bare-bones business model was exposed, revealing a fundamental flaw: a classic asset-liability mismatch.

• Liabilities (Costs): WeWork was on the hook for billions of dollars in long-term lease payments to landlords, often spanning 10-15 years. These were fixed, long-term obligations.
• Assets (Revenue): Its revenue came from its members, who signed flexible, short-term contracts, many on a month-to-month basis. This income was variable and highly sensitive to economic conditions.

This structure is incredibly risky. In an economic downturn, WeWork could see its short-term revenue evaporate as members canceled their contracts, but its long-term lease payments would remain due. It was like renting a mansion on a 15-year contract and trying to cover the rent by subletting rooms on Airbnb. When bookings dry up, you're still responsible for the entire lease. For comparison, its publicly traded competitor IWG (formerly Regus), which ran a similar but less glamorous business, was valued at a small fraction of WeWork despite being profitable. This disparity highlighted the absurdity of WeWork's valuation.

The disastrous S-1 filing triggered a swift and brutal collapse. The planned IPO was scrapped, Adam Neumann was ousted (with a generous exit package), and SoftBank was forced to orchestrate a multi-billion dollar bailout to prevent an immediate collapse. Despite these efforts, WeWork's financial troubles continued, culminating in the company filing for Chapter 11 bankruptcy in November 2023.

The WeWork saga is more than just a dramatic story; it's a goldmine of timeless investment lessons, echoing the wisdom of legendary investors like Benjamin Graham and Warren Buffett.

1. 1. Scrutinize the Business Model: Look past the shiny branding and buzzwords. Ask yourself: How does this company actually make money? Is it a genuinely disruptive business, or a traditional one masquerading as a tech company to justify an inflated valuation? If you can't explain the business to a teenager in two minutes, you probably shouldn't invest in it.
2. 2. Read the Financials, Not Just the Story: A compelling narrative is not a substitute for a strong balance sheet and positive cash flow. Be deeply skeptical of custom-made performance metrics like “Community-Adjusted EBITDA.” Stick to standardized accounting principles that allow for honest comparisons.
3. 3. Valuation is Paramount: Hype can detach a company's stock price from its underlying reality. Never invest in a story at any price. Compare a company's valuation metrics not to its “aspirational” peers (like tech companies for WeWork) but to its actual competitors (like other real estate firms).
4. 4. Beware of Poor Corporate Governance: A charismatic founder is not always an asset. Watch for red flags like self-dealing, excessive control, and a board of directors that fails to provide meaningful oversight. Strong corporate governance is essential for protecting shareholder interests.