https://www.profgalloway.com/wewtf
— Mismatched durations. The founder of Kohlberg Capital, Jim Kohlberg (total gangster), taught me investment firms go out of business because of "mismatched durations." It’s about raising money short (customers who can stop buying your product service soon/tomorrow) and investing money long (10-year leases). WeWTF is an especially risky business going into a recession, when the ability to variabilize costs is limited, but revenue decline is unlimited. WeWTF has $47 billion in long-term obligations (leases) and will do $3 billion in revenue this year. What could go wrong?
— Mismatched durations. The founder of Kohlberg Capital, Jim Kohlberg (total gangster), taught me investment firms go out of business because of "mismatched durations." It’s about raising money short (customers who can stop buying your product service soon/tomorrow) and investing money long (10-year leases). WeWTF is an especially risky business going into a recession, when the ability to variabilize costs is limited, but revenue decline is unlimited. WeWTF has $47 billion in long-term obligations (leases) and will do $3 billion in revenue this year. What could go wrong?
There are other businesses like this (real estate, Hertz), and they are good businesses. Businesses that trade at, I don't know, 0.5 to 2x revenues. However, WeWTF is claiming it's not in this neighborhood, or even the same planet. So, let's talk valuation.
Insane. Seriously loco. Ok, let's assume WeWTF is onto something, better than peer IWG or Hertz. But is this firm, trading at 26x revenues, superior to Amazon, which trades at 4x revenues? There appears to be no scale effects, as losses have kept pace with revenue growth. There is little pricing power, as they are still a mole on the elephant of commercial real estate. There is no defensible IP, no technology, no regulatory moats, no network effects, and no flywheel effect (the ancillary businesses are stupid, just stupid).
The last round $47 billion "valuation" is an illusion. SoftBank invested at this valuation with a "pref," meaning their money is the first money out, limiting the downside. The suckers, idiots, CNBC viewers, great Americans, and people trying to feel young again who buy on the first trade — or after — don’t have this downside protection. Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity. The bankers (JPM and Goldman) stand to register $122 million in fees flinging feces at retail investors visiting the unicorn zoo. Any equity analyst who endorses this stock above a $10 billion valuation is lying, stupid, or both.