A NYU professor calls WeWork & # 39; WeWTF & # 39; and slap the bankers

Adam Neumann, CEO of The We Company.AP Photo / Mark Lennihan

• Scott Galloway is a professor of marketing at New York University's Stern School of Business, a successful author and a leading technology specialist.
• He analyzed WeWork's S1 deposit as he prepared for an IPO under his new name, We Company.
• He summed up most of the company's major criticisms of his losses, culture, corporate structure and disclosures about his business relationship with founding CEO Adam Neumann.
• But Galloway, in his well-known style, goes further: he has also criticized the bankers involved in this deal, writing that they "may be running a $ 122 million fee throwing faeces at investors individuals ".
• The following is his blog post fully reissued with permission. Originally, he was shooting on his own blog "No Mercy / No Malice".

• Read here all BI WeWork coverage.

Really? Really?

I have started nine companies and I am generously 3-4-2 (draw, draw). In retrospect, and I think a lot, the only reliable forward-looking indicator of the success or failure of our society was … the right moment. More specifically, the part of the business cycle at the foundation.

The companies we created during a recession were easier to find talent, control costs, and get an immediate return on whether this solution worked when customers / consumers kept their portfolio chains closed. Then, armed with a value proposition tested in combat, at the end of the recession, we took advantage of the lost trust to be able to spend more and try new things. #disco.

In boiling markets, it's easy to get into a consensual hallucination, with investors and markets, that you create value. And it's easy to hide the weaknesses of the business with the charm of a bull market: cheap capital. WeWork has given a new meaning to the word wallpaper.

Lily: How WeWork paid Adam Neumann $ 5.9 million to give him the name "We"

This is more reminiscent of the marbled marble paneling that is found in Mike Brady's home office – paneling whose mucilaginous coating will fade at the first breath of a recession, revealing a family of raccoons or the Mummified corpses of anti-drug mules.

The features of the 70s sitcom boards:

Worship

The WeWork flyer has a dedication (no joke): "We dedicate this to the power of Us – greater than everyone of us, but in all of us." I'm pretty sure Jim Jones printed t-shirts with this inspiring missive.

Speaking of idolatry, "Adam" (as in Neumann) is mentioned 169 times, against an average of 25 mentions for the founder / CEO in other unicorn flyers.

The CEO of Uber, Dara Khosrowshahi, is mentioned 29 times in their prospectus. Granted, "Adam" is super dreamy, in the manner of an Argentine polo player (he is Israeli). But he is not six times more dreamy than Dara, who has a whole thing "Omar Sharif, if he went to Brown". But I'm misleading. Our mission is to "raise the consciousness of the world". Perhaps, but it is clear that the mission of the prospectus is to attenuate our conscience before listening "The story of us: we".

Founders CEO's MentionsScott Galloway

Nomenclature

Find the most popular sector and if you do not have the knowledge, intellectual property, engineering, capital, code, skills, human capital or index, just borrow the words. SaaS companies trade at a multiple of their (yay) income compared to real estate companies, which are trading at a multiple of EBITDA (boo). So, we are not a real estate agency that rents office space, it is a space company as a service (SAAS). I know, use the word "technology" over and over again, despite the lack of research and development, computer science, and so on. And here we are … we are Salesforce.

Today, I have frozen water and used this technology to reconfigure the environment encapsulating my Zacapa and Coca-Cola. So, I'm Bill Gates. Better yet, I started today to call my wife Gisele, which means that I am the starting quarterback of the Pats.

At WeWTF, you are not a guest, but a member. The member has a more "recurring income" sound. So I plan to become a member tomorrow night at the Boston Marriott, where I will then become a member of the TD Center to watch a 21-year-old Canadian (Shawn Mendes) with my 8-year-old son … also a member of the Marriott and TD Center , at least for tomorrow.

Invented metrics

GAAP accounting standards have depreciated you? No problem at WeWTF. We have started to present a "community-based EBITDA", a profitability before the BITDA, but we also support expenses, including real estate, which constitute the bulk of the costs necessary to provide the service. A more honest description of the metric would be "EBEE, profits above all else".

As a person who follows the actions and goes on television to pretend that I have an idea of ​​the direction that a given action takes, I would like to suggest some parameters to better understand We:

EBG, earnings before gluten
EBBG, Results before the big dawn (tennis balls, pig ears, etc.)
EBEPW, Earnings before equal pay for women

Red flags

My godchild informed me that she was going out with a club promoter, a red flag. From time to time, red flags get married, the Biebs and Hailey Baldwin – what could go wrong? So now, imagine red flags on the dimensions of Kansas. Buckle up your belt

– Adam Neumann sold $ 700 million in stock. As a founder, I sold shares in a secondary offering to obtain cash and diversify holdings. OK I understand. But 3/4 billion dollars? These are 700 million red flags that spell words on the ground of a football field at halftime: "Make me a hell of this stock, but you should buy some."

– Gross margins are a pretty good indicator of the good or bad behavior of a company. And this is a shitty affair:

WeWork turnover and lossesScott Galloway, no pity / no malice
– Adam has several family members working in the company who earn "less than $ 200,000".

– The array of property structure looks like a hieroglyph on a cave wall on the survival of the species: harvest crops when the sun is high on the horizon, do not venture on hills, hostile tribes live there, and … do not buy that stock. WeWTF's corporate governance structure gives Chinese companies an American, forward-thinking appearance.

We work

– The section of this Prospectus for Related Parties reads like the Trump Administration. Adam owns 10 buildings, of which he has rented several to WeWTF with a not insignificant profit. Adam also held the rights to the "We" brand, which the company decided to hold and paid $ 5.9 million to the founder / CEO for the rights. Rights on a name almost identical to the name of the company of which he is the founder / CEO and the largest shareholder.

YOU. CAN NOT. MAKE. THIS. SH * T. UP.

– incompatible durations. Kohlberg Capital's founder, Jim Kohlberg ("Total Gangster"), has learned that investment firms go bankrupt because of "inconsistent durations". It 's about reaping money short (customers who can stop buying your product soon / tomorrow) and invest money in the long run ( leases of 10 years). WeWTF is a particularly risky business in times of recession, when the ability to vary costs is limited, but the decline in revenue is unlimited.

WeWTF has long-term obligations (leases) of $ 47 billion and will generate $ 3 billion in revenue this year. What could go wrong?

There are other companies like this one (real estate, Hertz), and these are good companies. Companies that are trading at, I do not know, 0.5 to 2x revenue. However, WeWTF claims that it is not in this neighborhood, nor even on the same planet. So, let's talk about valuation.

Foolish. Seriously loco. Ok, suppose WeWTF is on something better than its counterpart IWG or Hertz. But this company, which negotiates 26 times its revenue, is it superior to Amazon, which negotiates four times more?

There seems to be no scale effect, as losses have kept pace with revenue growth. There is little pricing power because they are still a mole on the elephant of commercial real estate. There is no defensible intellectual property, no technology, no regulatory gap, no network effect and no steering effect (the ancillary activities are stupid, but stupid).

The last round of "valuation" of $ 47 billion is an illusion. SoftBank has invested in this valuation with a "pref", which means that their money is the first to go out, which limits the disadvantages. CNBC suckers, idiots, viewers, big Americans and people who are trying to feel young again and who buy at the first transaction – or after – do not have this protection against the inconvenience. Similar to the DJIA, last-round private valuations are harmful measures that create the illusion of prosperity.

The bankers (JPM and Goldman) will record $ 122 million in fees, throwing faeces at private investors visiting the Licorne Zoo. Any stock analyst who approves this action above a valuation of $ 10 billion ment, stupid or both.

Adam's wife is the cousin of Gwyneth Paltrow, which means that Adam is two degrees away from Goop, an assault on humanity.

Ms. Neumann created a controversy when she went to CNBC and said, "A big part of being a woman is helping men [like Adam] to manifest their vocation in life ".

Ok, ok … everything that works for you and Adam. But it is not the role of retail investors to help Adam realize his vocation: he should feel well manifested with $ 700 million. The paneling is convincing and cool, but it starts to curl and the substance behind the wood veneer stinks. I mean, it stinks.

Scott Galloway is a marketing professor at the NYU Stern School of Business and best-selling author of The Four and The Algebra of Happiness. He is a frequent speaker in the technology sector and founder of nine companies, including L2, red envelope and prophet. This article originally appeared on Scott Galloway's No Mercy / No Malice blog. Follow Galloway on Twitter at @profgalloway. Republished with permission.