WeWork: Take 2
You may fairly argue that “Earnings Before Interest, Taxes, Depreciation, Amortization, Marketing Expenses” has been mumbled before. Fair play to that, but the way this company throws the term around is breathtaking — well my breath at least is taken.
Capital Thinking · Issue #939 · View online
In looking at “things” I am always surprised that nobody seems to be able to find the “worst” companies out there. It seems like that should be an easy task.
The Next WeWork
Jeff Minch | The Musings of The Big Red Car:
I am not talking about companies that fail quickly in their infancy because the market spits the bit on their idea, but companies who fail because their monumental “success” is built on a foundation of feces. [In this instance, we are talking only $250,000,000 in funding, not quite WeWork $$$.]
Case in point?
WeWork which was spotted from its genesis (by those who had a smidgen of real world, commercial real estate knowledge) as a horribly bastardized nightmare in an industry that has been around forever — FOREVER.
I wrote about the company, WeWork, some time ago: We IPO — You Work, I Work, WeWork
I was critical at the time of its Messianic founder and his “real estate as a service” mantra. In retrospect, I could have been more critical and I was pretty damn critical.
OK, Big Red Car, what’s the deal?
I think, dear reader, I have found another WeWork worthy company — a company so certain to fail, fail spectacularly, that it can be smoked out right now. [OK, Big Red Car, that’s a little harsh. Dial it back. Sorry. Just an opinion.]
Let me tell you about the company just a bit, may I?
Of course I can; it’s my blog.
Who is it, Big Red Car? Who? Who?
Gentle on the whips, please. Let me share some characteristics of the company.
Firstly, I wrote about the issue of “Ethical Investing” in mid-September.The Myth of “Ethical Investing”
Let me give you a run down of some of the big points:
1. The company sits at the Venn (John Venn 1880) diagram confluence of ESG, tree planting, celebrity investors/advisers, and uses the term “… as a service.” Whew.
What company doesn’t want Leonardo DiCaprio as an investor along with Orlando Bloom, Robert Downey, Jr., Cindy Crawford, Doc Rivers, and Drake?
Nothing drives ESG — environmental, governance, social — like a bunch of elite celebrities, right? And, tree planting?
2. The company is fast and loose with its “community of 5 million ‘passionate'” and “purpose-driven members.” [This info comes from various sources including the company’s investor deck.]
To become a “passionate” and “purpose-driven member” one does NOT have to actually use the service. You only have to have signed the company’s terms and conditions (clicked a box and provided an email), like when you wanted to troll their website.
In reality, at the time of the assertion, the company had 361,000 actual customers. If you do the math, something like 18% of the passionate and purpose-driven community is actually a customer.
3. The company is working the public like a rented mule on the last day of the month landing on the Certified B Corporation’s “Best for the World” for the last four years as well as Inc’s “25 Most Disruptive Companies.”
4. The company’s mission statement is a thing of beauty:
X Company is in the business of SUSTAINABILITY — our mission is to empower people and businesses to do well and to do good.
Cat out of the bag, the candidate company is in the sustainability business. Sustainability as a service, y’all? Sounds disruptive to me.
5. The company’s numbers are of such a character that they had to invent/embrace a new metric — EBITDAM.
You may fairly argue that “Earnings Before Interest, Taxes, Depreciation, Amortization, Marketing Expenses” has been mumbled before. Fair play to that, but the way this company throws the term around is breathtaking — well my breath at least is taken.
From the company’s own deck, it will burn $133,000,000 in real cash in 2021 whilst calling itself “EBITDAM profitable.”
Put a little country wit on the notion that the company will spend more than 150% of gross revenue on marketing. Now, you can see why the “M” in EBITDAM is in there, no?
In fairness, the company says that marketing is a customer acquisition expense whilst EBITDAM is a measure of core operational profitability.
Why do we care, Big Red Car?
Photo credit: P. L. on Unsplash