WEBVTT - The Bullish Case for WeWork 0:00:12.119 --> 0:00:15.920 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.960 --> 0:00:22.320 I'm Joe Wisenthal and I'm Tracy Hallaway Tracy nineteen. There's 0:00:22.360 --> 0:00:24.400 been a lot of interesting things that have happened in 0:00:24.760 --> 0:00:27.280 markets so far this year, but one of the defining 0:00:27.360 --> 0:00:30.360 characteristics I think has to be that it's really been 0:00:30.880 --> 0:00:32.720 the year of the I p O, or at least 0:00:32.960 --> 0:00:34.879 i pos have been a big story in a way 0:00:34.920 --> 0:00:37.280 that they haven't been in a long time, right, and 0:00:37.400 --> 0:00:39.320 not just any I p as We've had quite a 0:00:39.320 --> 0:00:42.199 few tech company I p o s. Right, so we 0:00:42.280 --> 0:00:48.720 had let's see Uber beyond Meat both like relatively uh, 0:00:49.520 --> 0:00:51.960 I guess some people would call it unsuccessful giving the 0:00:52.360 --> 0:00:56.160 share price performance since then. Well, Uber, I guess has 0:00:56.200 --> 0:00:58.160 been a little bit unsuccessful in the fact that it 0:00:58.200 --> 0:01:01.400 didn't have a pop and b on Meat is unsuccessful 0:01:01.400 --> 0:01:04.120 in the other direction, in the sense that it's soared 0:01:04.240 --> 0:01:09.080 to an insane degree since when public implying that the 0:01:09.080 --> 0:01:11.360 the company left a lot of money on the table. Although, 0:01:11.400 --> 0:01:15.120 to be honest, you know, when when stocks sore, I 0:01:15.200 --> 0:01:17.240 get this argument that a company left a lot of 0:01:17.240 --> 0:01:19.840 money on the table, But I doubt anyone who's really 0:01:19.880 --> 0:01:22.960 complaining because they're all crazy rich now, so oh yeah, 0:01:23.160 --> 0:01:26.080 you hear that all the time, that the underwriter's messed 0:01:26.120 --> 0:01:28.600 up or something. But yeah, I doubt anyone who's standing 0:01:28.640 --> 0:01:31.240 there watching like the listing price, watching their net value 0:01:31.240 --> 0:01:34.040 go up, is actually upset about that one. Yeah, like, 0:01:34.040 --> 0:01:36.399 are they really that upset? And they can always sell 0:01:36.480 --> 0:01:39.160 more stock at a secondary if they want. But yeah, 0:01:39.200 --> 0:01:41.000 as you said, you know, like that, we had some 0:01:41.120 --> 0:01:43.600 like really murky I p o s this year already, 0:01:43.760 --> 0:01:47.120 Uber being the most notable uh, the largest at the 0:01:47.160 --> 0:01:50.720 time startup in the world or private company in the world, 0:01:50.760 --> 0:01:53.720 I think, or close to it. Uh, it's kind of fizzled. 0:01:53.760 --> 0:01:56.360 But actually it's been a pretty kind of euphoric year 0:01:56.440 --> 0:02:00.920 now between Beyond Meat and Zoom Video and CrowdStrike was 0:02:00.960 --> 0:02:03.600 another reason. One. There's a number of companies that have 0:02:03.760 --> 0:02:08.720 found very enthusiastic receptions on the public market this year, right, 0:02:08.760 --> 0:02:12.480 and I believe there's another one that's sort of waiting 0:02:12.639 --> 0:02:15.800 in the wings. And this is a you know, even 0:02:15.880 --> 0:02:19.320 compared to Uber, this is a really interesting company that 0:02:19.480 --> 0:02:25.160 sort of generates a lot of very different opinions. Let's say, yes, 0:02:25.320 --> 0:02:29.480 so you're talking about we Work, which is the famous 0:02:29.560 --> 0:02:34.639 or maybe infamous commercial real estate company that's gigantic. I 0:02:34.639 --> 0:02:37.200 don't know how many tens of billions it's worth right now. 0:02:37.240 --> 0:02:41.239 I think maybe just under fifty billion, but right they're 0:02:41.320 --> 0:02:45.920 known for taking out these big leases from building owners 0:02:46.000 --> 0:02:48.640 and then re renting the space out to startups, and 0:02:48.639 --> 0:02:51.600 it's a hip office environment and there's a lot of beer, 0:02:51.880 --> 0:02:57.200 and they the company is incredibly controversial, to say the least. 0:02:57.200 --> 0:03:00.080 There have been numerous profiles written of its c O, 0:03:00.200 --> 0:03:03.480 who himself seems to be quite a character. Like many 0:03:03.800 --> 0:03:07.040 uh these startup c e o s are lots of 0:03:07.040 --> 0:03:10.480 people extremely skeptical that it's going to be a long 0:03:10.600 --> 0:03:14.840 term money making business. But after Uber, it really is 0:03:14.880 --> 0:03:18.000 the gigantic one sort of sitting out there waiting in 0:03:18.040 --> 0:03:20.120 the wings. I don't think anyone knows exactly when it 0:03:20.120 --> 0:03:23.240 will become public, but at some point it almost certainly 0:03:23.240 --> 0:03:25.440 will have to file for an ip O. I like 0:03:25.520 --> 0:03:28.919 that your description of we work office space is there's 0:03:28.919 --> 0:03:31.640 a lot of beer, but but it's like a big 0:03:31.680 --> 0:03:34.760 thing like of of it's office space, but it's supposed 0:03:34.760 --> 0:03:37.000 to be cool and start up a start that means 0:03:37.360 --> 0:03:40.560 beer taps and cold brew coffee on tap and stuff 0:03:40.600 --> 0:03:42.520 like that. But I'm just going to point out you've 0:03:42.520 --> 0:03:45.920 already sort of betrayed a slight bias because you called 0:03:45.960 --> 0:03:48.840 it a commercial real estate company. And of course, the 0:03:49.000 --> 0:03:52.640 big debate over we Work and its valuation and its 0:03:52.680 --> 0:03:56.880 future is whether or not it's actually something more than 0:03:56.920 --> 0:03:59.440 a commercial real estate company. Because if you're attaching a 0:03:59.480 --> 0:04:03.120 fifty bill in dollar evaluation to something, you know it's 0:04:03.160 --> 0:04:05.720 probably going to have the words tech in it or 0:04:05.800 --> 0:04:09.520 some sort of like all encompassing lifestyle brand, and that's 0:04:09.560 --> 0:04:13.240 the huge debate currently raging, right or it's got to 0:04:13.280 --> 0:04:16.800 be a platform in some way to justify that. So 0:04:16.880 --> 0:04:20.080 the interesting thing about we Work to me is, you know, 0:04:20.120 --> 0:04:23.440 it's like, if you're talking about Uber, there's very easy 0:04:23.480 --> 0:04:25.279 to come up with the bull in the bear case. 0:04:25.400 --> 0:04:28.000 You say, okay, the bowl case is that sort of 0:04:28.080 --> 0:04:32.160 on demand mobility is going to be gigantic and it's 0:04:32.200 --> 0:04:35.400 barely even started, and that there's all other kinds of 0:04:35.440 --> 0:04:39.839 businesses that they can layer into their UM ride sharing business, 0:04:39.960 --> 0:04:42.760 like food delivery and other logistics things. And then the 0:04:42.800 --> 0:04:45.400 bear cases, well, they're losing a lot of money, and 0:04:45.600 --> 0:04:47.880 you can have a real debate and there seems to 0:04:47.920 --> 0:04:50.920 be very legitimate. Two sides to it. And what's really 0:04:50.960 --> 0:04:55.280 striking about We Work is it's extremely rare to find 0:04:55.520 --> 0:04:58.160 a bowl or even a partial bowl, or an optimist. 0:04:58.560 --> 0:05:03.320 It's universally, I think people are skeptical about this company. 0:05:03.360 --> 0:05:07.720 And that's pretty unusual because usually there's someone or a 0:05:07.760 --> 0:05:10.880 good contingent that says, no, you don't really get this right. 0:05:10.960 --> 0:05:14.000 I mean, someone is clearly giving this company money, right, 0:05:14.080 --> 0:05:17.120 So you know, bowls must be out there somewhere. They're 0:05:17.160 --> 0:05:20.680 just not very vocal, I guess. So the good news 0:05:20.800 --> 0:05:24.119 is we have a bowl, or at least a modest bowl. 0:05:24.440 --> 0:05:28.279 We found one. We're going to hear the uh, the 0:05:28.480 --> 0:05:33.040 less pessimistic case on we Work. He tweeted about it 0:05:33.480 --> 0:05:36.240 a few weeks ago, and it was like it was 0:05:36.279 --> 0:05:40.120 it was the true unicorn, someone saying something positive about 0:05:40.160 --> 0:05:44.240 we work on the internet. The real unicorn, the real unicorn. 0:05:44.560 --> 0:05:46.279 And so I knew we had to get him on 0:05:46.400 --> 0:05:49.480 the show. So without further ado, let's bring him in. 0:05:50.320 --> 0:05:52.960 I want to welcome to Odd Lots Sandy Corey. He 0:05:52.960 --> 0:05:57.000 has a managing director at Horizon Partners. Out in the 0:05:57.080 --> 0:06:00.760 Valley is a Silicon Valley investment banker, and we're going 0:06:00.800 --> 0:06:03.880 to be talking about why perhaps the doom and gloom 0:06:04.040 --> 0:06:07.919 story about we Work is overrated. So, Sandy, thank you 0:06:08.000 --> 0:06:10.720 very much for joining us. Thanks a lot for having 0:06:10.760 --> 0:06:14.520 me So, Sandy, I mean, as I sort of alluded to, 0:06:15.360 --> 0:06:19.440 everyone kind of knows the pessimistic story about we Work, 0:06:19.520 --> 0:06:22.320 and it really is relentless. And there's so many sort 0:06:22.360 --> 0:06:27.160 of classical red flags that caused people to think that 0:06:27.200 --> 0:06:29.800 this company will eventually fizzle or that it's a house 0:06:29.839 --> 0:06:34.800 of cards. They come up with their own bespoke metrics 0:06:35.000 --> 0:06:37.280 of how to measure their business. They have something I 0:06:37.279 --> 0:06:41.320 think it was called community adjusted but uh, they lose 0:06:41.440 --> 0:06:46.880 tons of money. Um. Their CEO is all kinds of eccentricities. 0:06:47.560 --> 0:06:52.080 They announced recently they're launching a new off balance sheet 0:06:52.240 --> 0:06:55.240 vehicle to buy buildings which will then be leased back 0:06:55.279 --> 0:06:57.880 to WE Work. And somehow that's supposed to make the 0:06:57.920 --> 0:07:03.040 buildings more valuable. Uh. The CEO had some questionable related 0:07:03.120 --> 0:07:07.360 party transactions because he owned some buildings that which questions 0:07:07.360 --> 0:07:09.359 about whether WE Work was getting a fair deal or 0:07:09.400 --> 0:07:12.680 not in renting them. It's just like the red flags 0:07:12.760 --> 0:07:16.280 with this company, which has become ubiquitous and cities all 0:07:16.280 --> 0:07:20.120 around the world are so numerous, and that is why 0:07:20.160 --> 0:07:22.480 it seems like almost nobody is willing to step up 0:07:22.520 --> 0:07:25.600 and say, wait, there might be something here, This might 0:07:25.640 --> 0:07:30.240 be really something valuable and growing. So, Sandy, what is 0:07:30.280 --> 0:07:35.920 it at its core that people misunderstand about We Work? Well, 0:07:36.680 --> 0:07:40.080 thanks a lot, Joe. It's a fascinating company, and it 0:07:40.160 --> 0:07:44.080 certainly is polarizing. And I think, you know, I like 0:07:44.240 --> 0:07:46.520 to try to take historical lens and looking at some 0:07:46.600 --> 0:07:49.200 of these businesses, and a lot of the critiques that 0:07:49.280 --> 0:07:51.720 you are presenting, I think have also been applied to 0:07:51.800 --> 0:07:55.560 other companies over history, you know, that have been misunderstood. 0:07:55.920 --> 0:07:58.640 You know, in the eighties, there was this wacky financial 0:07:58.680 --> 0:08:02.600 metric that was being promoted by operators in the cable 0:08:02.640 --> 0:08:05.840 industry because those businesses weren't really making money. It was 0:08:05.840 --> 0:08:09.120 called IBADA and in people thought that was pretty wacky. 0:08:09.200 --> 0:08:11.640 And of course now everyone uses ebitda as a as 0:08:11.640 --> 0:08:14.800 a pretty reasonable financial metric, and that the cable industry 0:08:14.840 --> 0:08:17.680 really did take off. Um, you know, back then and 0:08:17.960 --> 0:08:22.280 for many years after. So um, I think that the 0:08:22.320 --> 0:08:24.400 book case with We Work is that, look, you know, 0:08:24.480 --> 0:08:27.960 in Q one, they released some financial information and Q one. 0:08:28.440 --> 0:08:32.400 They they were annualized to three billion in revenue and 0:08:32.559 --> 0:08:36.120 they were growing a year every year. UM. So I 0:08:36.160 --> 0:08:38.719 think that's the start of something that potentially could be 0:08:38.840 --> 0:08:42.000 very valuable. They're in a massive industry, commercial real estate 0:08:42.200 --> 0:08:45.000 that's very fragmented, UH, and I think that they are 0:08:45.080 --> 0:08:47.160 in a position to build you know, leverage in that 0:08:47.240 --> 0:08:50.520 ecosystem in a really unique way. UM. They have a 0:08:50.520 --> 0:08:53.640 growing brand UH that you know, gives them an advantage 0:08:53.679 --> 0:08:57.200 in acquiring new customers or new users. You know. I 0:08:57.240 --> 0:08:59.520 think they have built a little bit of technology that 0:08:59.559 --> 0:09:01.720 can give UM leverage. I think they're probably still just 0:09:01.880 --> 0:09:04.679 scratching the surface there. And in fact, that might be 0:09:04.720 --> 0:09:07.800 one of the biggest bullish UH factors for the company, 0:09:07.840 --> 0:09:10.959 which is that if they can dig in in technology 0:09:11.400 --> 0:09:14.400 in an industry that historically has been allergic to technology, 0:09:14.640 --> 0:09:18.720 there's a there's a big source of advantage there. So, Sandy, 0:09:18.840 --> 0:09:22.520 you mentioned this notion of we work building up leverage 0:09:22.559 --> 0:09:24.719 in the real estate industry, and Joe and I were 0:09:24.720 --> 0:09:29.679 talking earlier about how if you have evaluation of this magnitude, 0:09:29.760 --> 0:09:32.880 it's usually because you have a sort of growth story 0:09:32.920 --> 0:09:35.280 attached to it, a growth story that might be you know, 0:09:35.320 --> 0:09:37.840 a big brand, a platform of some sort, or some 0:09:37.920 --> 0:09:42.040 sort of tech disruption angle. So talk to us about 0:09:42.080 --> 0:09:46.240 how exactly we work is disrupting the real estate industry 0:09:46.280 --> 0:09:52.240 and how exactly are they building up leverage within real estate. Sure, well, 0:09:52.440 --> 0:09:55.680 I think on the leverage aspect, it's mostly a function 0:09:55.679 --> 0:09:58.720 of scale. And I think that you know, coming across business, 0:09:58.800 --> 0:10:00.760 you know, when you have massive scale, it gives you 0:10:00.840 --> 0:10:04.800 leverage to get better economics and to push around suppliers 0:10:04.840 --> 0:10:07.520 and vendors and so forth. Um So I think that's 0:10:07.520 --> 0:10:10.680 the path that they are you know, kind of taking 0:10:10.800 --> 0:10:12.960 that that should pay off, you know, with more and 0:10:12.960 --> 0:10:15.160 more leverage that can kind of squeeze into better you 0:10:15.240 --> 0:10:18.160 can unit economics in the future. Look at the core disruption, 0:10:18.200 --> 0:10:19.880 I think it's just that they're you know, they have 0:10:19.920 --> 0:10:22.640 a better a better user experience you know, for their 0:10:22.640 --> 0:10:24.760 customers and so, you know, and that starts with the 0:10:24.800 --> 0:10:28.040 flexibility of the of the product, which I think, you know, 0:10:28.040 --> 0:10:29.839 on the one hand, it looks, uh, hey, it's just 0:10:29.920 --> 0:10:32.040 month the month, what's the big deal. Well, you know 0:10:32.320 --> 0:10:35.719 historically that the you know, one of the key aspects 0:10:35.760 --> 0:10:39.160 of consuming commercial real estate, you know, renting an office 0:10:39.280 --> 0:10:41.760 is a long term commitment that can be very painful 0:10:41.800 --> 0:10:44.360 for for many many businesses, and so I think the 0:10:44.360 --> 0:10:47.480 flexibility aspect is is very important. And then you know, 0:10:47.640 --> 0:10:50.280 it also gives them a chance to reorient their business 0:10:50.400 --> 0:10:54.080 around customers, ideally you know, using the Internet and technology, 0:10:54.520 --> 0:10:57.520 and that can have really powerful implications and how they 0:10:57.559 --> 0:10:59.959 operate their business and how they can build a compet 0:11:00.040 --> 0:11:03.480 advantage of our time, you know, a Netflix or some 0:11:03.559 --> 0:11:06.160 of the other great kind of disruptors that have built 0:11:06.360 --> 0:11:11.560 service layers, you know, leveraging technology and the Internet. So again, 0:11:11.720 --> 0:11:14.040 you know, in the beginning, Tracy was talking about how 0:11:14.080 --> 0:11:18.040 to achieve such a big valuation. The idea is typically 0:11:18.080 --> 0:11:20.040 you have to like, oh, we're a tech company or 0:11:20.160 --> 0:11:22.439 we're a platform. But it kind of sounds like what 0:11:22.480 --> 0:11:26.800 you're saying is no, we were just just a really 0:11:27.520 --> 0:11:34.040 well run innovative landlord in a sense. But well not exactly. Look, 0:11:34.200 --> 0:11:36.600 it's a very hard business to understand. There's lots of 0:11:36.640 --> 0:11:39.400 sources of kind of misunderstanding. And you know, look, one 0:11:39.480 --> 0:11:42.680 is is valuation. So you can find a valuation headline 0:11:42.720 --> 0:11:45.800 of forty seven billion, but that that's a you know, 0:11:45.880 --> 0:11:49.040 kind of based on a preferred instrument that soft bank, 0:11:49.120 --> 0:11:52.040 which is kind of underrated, and they're there the complexity 0:11:52.040 --> 0:11:54.360 of their financial engineering, so they you know, they came 0:11:54.440 --> 0:11:56.400 up with that as part of the last announced round. 0:11:56.520 --> 0:11:59.520 But then that I think the real valuation for the 0:11:59.559 --> 0:12:02.640 company is more like twenty billion, which is the valuation 0:12:02.800 --> 0:12:05.720 where kind of seller's got so that I think it 0:12:05.760 --> 0:12:09.120 was a mix of common shareholders and early preferred who 0:12:09.160 --> 0:12:11.960 sold in into around a few months back, and they 0:12:11.960 --> 0:12:14.960 had a twenty billion dollar evaluation. And so yeah, look 0:12:15.000 --> 0:12:18.080 it's a great question, is you know, is this is 0:12:18.120 --> 0:12:20.560 this a tech company or not? Does it deserve a 0:12:20.640 --> 0:12:24.079 software is a service revenue multiple? And I would say no. 0:12:24.520 --> 0:12:26.440 You know, we're in the market where SASS businesses are 0:12:26.480 --> 0:12:29.160 easily getting ten twenty times revenue, and so I don't 0:12:29.160 --> 0:12:32.040 think that that is that is necessarily warranted here for 0:12:32.120 --> 0:12:34.600 we Work. But is it worth you know, maybe five times, 0:12:34.600 --> 0:12:37.600 seven times, eight times in this hyper growth mode, I 0:12:37.640 --> 0:12:41.439 think it can be. So you mentioned the magic word 0:12:41.920 --> 0:12:45.160 hyper growth, and of course I guess the key to 0:12:45.240 --> 0:12:48.600 building up leverage in real estate for we Work is 0:12:48.880 --> 0:12:52.440 growing so quickly and amassing so much market power that 0:12:52.520 --> 0:12:56.760 you sort of basically just beat out competitors talk to 0:12:56.840 --> 0:13:00.560 us about like this notion of hyper growth. How long 0:13:00.800 --> 0:13:05.200 is it acceptable for a company to not post any profits, 0:13:05.360 --> 0:13:09.199 you know, for the sake of building up its market share? 0:13:09.400 --> 0:13:16.680 And how vital is funding to hyper growth? Well, that's 0:13:16.679 --> 0:13:18.720 a great question, and I think, you know, we work 0:13:18.840 --> 0:13:22.400 is a kind of a running experiment on how far 0:13:22.760 --> 0:13:24.560 you know you can go. But I do think that 0:13:25.000 --> 0:13:27.079 you know, you've got to keep the context in mind, 0:13:27.080 --> 0:13:29.000 which is that we are in a world where money 0:13:29.080 --> 0:13:33.079 is is historically cheap um and and access to capital 0:13:33.120 --> 0:13:36.560 for hyper growth companies UM is you know, pretty open. 0:13:36.880 --> 0:13:38.640 So I think you know, you can look at we 0:13:38.640 --> 0:13:40.600 were going to say, hey, this couldn't have existed twenty 0:13:40.679 --> 0:13:42.640 years ago, and it's kind of the meat at least, 0:13:42.720 --> 0:13:45.320 you know obvious lots of these businesses UM like an 0:13:45.440 --> 0:13:48.240 uber or a lift um, you know, depend on the 0:13:48.520 --> 0:13:50.480 access to low cost capital, and so we worked as 0:13:50.520 --> 0:13:53.160 as well. Um, you know, can they continue to grow 0:13:53.160 --> 0:13:57.319 acent well into the billions of revenue um? That might 0:13:57.360 --> 0:14:00.680 be difficult. Um. I think it's it's it is hard 0:14:00.760 --> 0:14:03.520 to get too deep into the finances because while they 0:14:03.559 --> 0:14:06.200 do release some financial formation, there's a lot that we 0:14:06.240 --> 0:14:10.240 don't know about the kind of cohort economics and the 0:14:10.240 --> 0:14:13.600 economics by geography, and so my I think the bowl 0:14:13.640 --> 0:14:16.920 case is that in we Works more mature geographies, the 0:14:16.960 --> 0:14:19.320 unit economics are pretty good. I think that's also the 0:14:19.320 --> 0:14:22.480 bowl case for businesses like uber or door dash as well, 0:14:22.560 --> 0:14:25.800 and that they are investing a lot in new markets UM, 0:14:25.880 --> 0:14:28.560 and that is is kind of the big cash depleted. 0:14:28.760 --> 0:14:31.240 So if in their mature markets, we Work is is 0:14:31.280 --> 0:14:34.040 hemorrhaging in cash, then that's obviously pretty worrisome. But my 0:14:34.080 --> 0:14:35.880 guess is that looking at more mature markets like a 0:14:35.920 --> 0:14:39.200 San Francisco, UM, you know, looking at buildings that they've 0:14:39.240 --> 0:14:41.760 been uh, you know, kind of leasing out for a 0:14:41.760 --> 0:14:45.120 period of time, the uneconomics are are pretty good. And 0:14:45.160 --> 0:14:47.800 I think with scale, you know that customer acquisition costs 0:14:47.800 --> 0:14:50.600 advantage gets kind of more and more meaningful. UM. They 0:14:50.640 --> 0:14:53.600 also are able to kind of squeeze out more efficiencies, 0:14:53.640 --> 0:14:55.840 you know, from various suppliers and back to find the 0:14:55.920 --> 0:14:59.320 leverage point once they are are renting, you know, fift 0:15:00.040 --> 0:15:03.240 the building from a landlord. The landlord might need them 0:15:03.360 --> 0:15:05.800 more than we Work needs the landlord. And that's just 0:15:05.880 --> 0:15:07.720 on a building. The building basis, and I think kind 0:15:07.720 --> 0:15:10.160 of similarly in a geo area. You know, we work 0:15:10.160 --> 0:15:12.040 and have a lot of leverage by you know, having 0:15:12.080 --> 0:15:16.440 a multiple buildings with with various landlords. So I think 0:15:16.520 --> 0:15:19.760 it's it's an open question just how much uh you know, 0:15:19.840 --> 0:15:23.560 better economics they can extract from suppliers, but I think 0:15:23.600 --> 0:15:25.360 they certainly can and they do. I mean, they they've 0:15:25.480 --> 0:15:29.960 said this that you know, they typically get their landlords 0:15:30.000 --> 0:15:34.720 to pay ninety percent of build out costs versus industry average, 0:15:34.760 --> 0:15:37.560 So that's an advantage. And then look on the flip side, 0:15:37.560 --> 0:15:42.080 they still need to innovate with their user experience, uh, 0:15:42.120 --> 0:15:43.800 you know, and their brand, you know, and kind of 0:15:43.840 --> 0:15:46.600 the social aspect that they offer so that they don't 0:15:46.600 --> 0:15:49.720 get caught in in a price war. You know, certainly 0:15:49.720 --> 0:15:51.840 that the bear case on an uber or a lift 0:15:52.280 --> 0:15:54.120 is that you know, they're selling a commodity there in 0:15:54.160 --> 0:15:55.880 a price war where the margins that were going to 0:15:55.960 --> 0:15:58.880 come from. And you know, with we work, you know 0:15:58.880 --> 0:16:02.000 that that the better the experience they can offer, hopefully 0:16:02.040 --> 0:16:04.120 you know, enabled by more and more technology, you know, 0:16:04.160 --> 0:16:06.880 they'll be able to command that kind of premium pricing. 0:16:07.480 --> 0:16:09.280 And I think, you know, one of those. One of 0:16:09.320 --> 0:16:12.160 the cases of skepticism is looking at hey, you know, 0:16:12.200 --> 0:16:15.920 the average member is only getting you know, fifty square feet, uh, 0:16:15.960 --> 0:16:18.360 and they're paying you know, six thousand bucks a year. 0:16:18.720 --> 0:16:22.760 That's crazy. Well, you know, I don't think it's necessarily crazy. Um, 0:16:22.800 --> 0:16:26.240 given that what they're selling to their customers is not 0:16:26.320 --> 0:16:30.000 just space, it's the the experience in the community, and well, 0:16:30.040 --> 0:16:31.960 it's easy to be able to skeptical of some of that. 0:16:32.280 --> 0:16:35.480 I do think that that that We Work users are 0:16:35.560 --> 0:16:38.640 voting with their feet, and you know, seeing their massive 0:16:38.680 --> 0:16:43.080 growth and high occupancy, it does seem like they really 0:16:43.080 --> 0:17:00.640 do have that differentiated offering. Obviously real estate. Everyone in 0:17:00.720 --> 0:17:04.320 real estate wants leverage. It's a leverage game. But that 0:17:04.400 --> 0:17:07.200 can really come back to bite you in a downturn. 0:17:07.280 --> 0:17:09.720 So I'm curious, like, let's say we were to hit 0:17:09.720 --> 0:17:14.040 a recession. The We Work defenders. Is your argument that a, 0:17:14.760 --> 0:17:17.719 they have their landlords to some extent over a barrel 0:17:17.760 --> 0:17:20.399 because they occupy so much of their space that they 0:17:20.440 --> 0:17:25.520 could renegotiate long term leases and be that obviously their 0:17:25.600 --> 0:17:29.600 tenants that they would take a hit. But because they 0:17:29.640 --> 0:17:33.320 offer more flexible terms, maybe they don't get as hit. 0:17:33.440 --> 0:17:36.640 As bad as some other uh, some other landlords. Isn't 0:17:36.640 --> 0:17:40.440 that the idea? Yeah, I think that's that's the book case. 0:17:40.480 --> 0:17:43.359 And I think that the idea is that, you know, 0:17:43.440 --> 0:17:46.600 like white bread consumption goes up in recessions because people 0:17:46.640 --> 0:17:49.320 are switching from the fancy whole weight to the whitebread, 0:17:49.480 --> 0:17:52.480 at least historically, you know, the flexible offering that they 0:17:52.480 --> 0:17:54.920 have will be more attractive, you know. And I think that, 0:17:54.960 --> 0:17:57.240 you know, intuitively, it makes sense, especially if you're a 0:17:57.240 --> 0:17:59.159 small business. And so a lot of people say, oh, 0:17:59.200 --> 0:18:01.440 what about these small businesses and startups, you know, what's 0:18:01.440 --> 0:18:03.760 going to happen in a recession? And I think that 0:18:03.800 --> 0:18:06.320 there's there's so many of them that that even in 0:18:06.320 --> 0:18:08.800 a recession, there's gonna be you know, more than enough 0:18:09.160 --> 0:18:11.399 to keep we work growing. I think that they're going 0:18:11.440 --> 0:18:13.760 to be attracted to that we work you know, flexibility. 0:18:14.160 --> 0:18:16.639 Um And and I think there's been anecdotal evidence, you 0:18:16.680 --> 0:18:19.000 know that in a few markets like Salpollo that they're 0:18:19.040 --> 0:18:21.920 in um where there was some uh, there was a 0:18:21.960 --> 0:18:24.760 kind of minor recession, you know, they did see an 0:18:24.760 --> 0:18:27.880 increase in demand. So I do think that that that 0:18:28.000 --> 0:18:30.440 is a powerful argument they have, and then yeah, I 0:18:30.720 --> 0:18:33.880 agree that they leverage they have with landlords will allow 0:18:34.000 --> 0:18:37.120 them to renegotiate if necessary, um to get better terms. 0:18:37.119 --> 0:18:38.480 And look, I mean I remember in two thousand and 0:18:38.520 --> 0:18:41.240 eight looking at all these actors across the financial spectrum 0:18:41.280 --> 0:18:44.080 and thinking all these are gonna go bust, And I 0:18:44.080 --> 0:18:45.919 mean it wasn't really something to be happy about. But 0:18:46.280 --> 0:18:49.400 as a kind of an amateur, you know, retail investor, 0:18:49.480 --> 0:18:51.480 I tried to make some trades to take advantage of 0:18:51.480 --> 0:18:53.359 these balance sheets that looked like they were going to 0:18:53.400 --> 0:18:55.040 blow up. But but guess what, you know, a lot 0:18:55.119 --> 0:18:58.159 of these institutions survived. And you know it was the 0:18:58.200 --> 0:19:00.960 old what was it? What did they say? The amend, extend, 0:19:01.040 --> 0:19:04.399 pretend And I mean it's nothing to be you know, 0:19:04.680 --> 0:19:06.959 uh too cheerful about. But I do think that we 0:19:07.000 --> 0:19:09.600 work will have that that type of flexibility where you know, 0:19:09.560 --> 0:19:10.600 at the end of the day, a lot of these 0:19:10.680 --> 0:19:13.320 landlords have their own creditors, um, and they're not going 0:19:13.359 --> 0:19:15.480 to be looking to a victim major tenant and what 0:19:15.560 --> 0:19:18.840 are their alternatives in a downturn where there aren't necessarily 0:19:18.880 --> 0:19:21.320 as many um, you know tenants you know kind of 0:19:21.359 --> 0:19:24.320 queued up for for big space. So I think I 0:19:24.320 --> 0:19:26.840 think that, you know, some of the biggest sources of 0:19:26.840 --> 0:19:29.720 of kind of misunderstanding what we work are. Yeah, this 0:19:29.800 --> 0:19:32.800 vulnerability to a recession. Look, I think we're all still 0:19:32.840 --> 0:19:35.359 scarred from the financial crisis of two, two does and nine, 0:19:35.440 --> 0:19:38.159 you know, which is reasonable given how brutal it was. 0:19:38.280 --> 0:19:40.960 But I think that even there is recessions, very unlikely 0:19:41.040 --> 0:19:43.800 will you'll approach anything like that. And I think we 0:19:43.880 --> 0:19:46.800 work as actually pretty well positioned. So I think that 0:19:46.800 --> 0:19:49.040 that is, to me, actually kind of one of the 0:19:49.080 --> 0:19:51.800 weaker elements of the bear case. I think kind of 0:19:51.800 --> 0:19:53.920 there's a there's an adjacent part of the bear case, 0:19:53.960 --> 0:19:56.240 you know, which is, hey, they're there, you know, and 0:19:56.280 --> 0:19:58.320 if you look at you know, fin Twitter, people called 0:19:58.600 --> 0:20:00.960 a Ponzi scheme. You know, they've got these long term 0:20:00.960 --> 0:20:04.600 releases and long term releases, you know, short term rentals. 0:20:04.600 --> 0:20:08.600 That's crazy and it's like well wright liability mismatch. Yeah, 0:20:08.640 --> 0:20:10.199 a lot of a lot of businesses have done that. 0:20:10.240 --> 0:20:13.520 I mean, that's the ESPN business model. And ESPN is 0:20:13.560 --> 0:20:15.919 not doing great today, but but historically, you know, they 0:20:15.960 --> 0:20:18.879 would send these long term deals with sports leagues to 0:20:18.920 --> 0:20:21.680 pay them exorbitant rice fees, you know, when they would 0:20:21.720 --> 0:20:23.760 sign them. You know, people in media say that's crazy, 0:20:24.080 --> 0:20:26.600 but guess what, you know, they made a lot of money. 0:20:26.920 --> 0:20:29.720 And there are cases where you know, owners of assets 0:20:29.760 --> 0:20:33.240 prefer you know, the certainty of getting paid and will 0:20:33.280 --> 0:20:35.879 forego some of the short term upside um that you 0:20:35.920 --> 0:20:37.720 can get when you take risk. And so I think 0:20:37.760 --> 0:20:40.480 we work, we works path there is actually pretty common. 0:20:40.840 --> 0:20:42.199 But a lot of folks, I think in the real 0:20:42.240 --> 0:20:45.320 esty industry look at that and think and think it 0:20:45.560 --> 0:20:47.480 you know, it can't last. But in fact, I think 0:20:47.480 --> 0:20:49.240 it's actually been a path that's worked pretty well for 0:20:49.240 --> 0:20:52.600 a lot of businesses across industries. So Sandy, I have 0:20:52.640 --> 0:20:56.359 a different um sort of bear case concern, I guess, 0:20:56.359 --> 0:20:58.479 and I think when it comes to a lot of 0:20:58.600 --> 0:21:01.320 sort of disruptive company or unicorns, I think there's a 0:21:01.320 --> 0:21:03.960 tendency to think that they all come in to the 0:21:04.160 --> 0:21:07.959 market whatever it might be, you know, cars or in 0:21:08.000 --> 0:21:10.080 this case real estate, and they come in, they do 0:21:10.160 --> 0:21:13.800 something different, they disrupt the market, and that that business 0:21:13.800 --> 0:21:17.240 model can continue forever and that the market basically stays static. 0:21:17.280 --> 0:21:19.240 And of course what tends to happen is the market 0:21:19.280 --> 0:21:23.280 actually adapts quite quickly, usually to a lot of these 0:21:23.280 --> 0:21:26.720 new business models um and you also get competitors at 0:21:26.760 --> 0:21:29.240