Is WeWork Default Dead or Default Alive?

Previously we talked about How Not To Die as a real estate agent. Another infamous Paul Graham term is “Default Alive or Default Dead“. It sounds extremely harsh and morbid, but that’s part of the point. Calling a company Default Dead should trigger some alarm bells.

WeWork today announced layoffs, cutting 2400 jobs in an attempt to stabilize the company and reach sustainability. Lets do some back-of-the-envelope math to see whether WeWork is likely Default Alive.

According to Glassdoor, they will save an average of $69K per community manager and $120K per software engineer. Most of the layoffs are probably community manager types, but we can be generous. Assume a high $150K average fully loaded cost of each employee, given all the expensive benefits (and ironically, co-working space).

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From the infamous S-1 filing prior to the failed IPO, WeWork was on track to make $3.0 Billion in revenues for 2019. Unfortunately, it seems WeWork is still Default Dead. Operating expenses are at least $3.8 Billion, even if we immediately exclude pre-opening, “growth and new market development”, and depreciation expenses. Operationally they are still $800M in the hole, with the job cuts saving at best $360M less severance, pre-committed leases, and lawsuits.

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To be Default Alive, the cuts need to be more than twice as large, or expect to grow gross profits by at least 15% with the remaining staff and resources.

 

Lee Lin
Lee Lin
Lee is a data geek from MIT who spent years at quantitative hedge funds cranking out models to explain and predict financial markets. Real estate has always been a big part of Lee's life. He grew up helping out at his parents' Jersey Shore motels, became a landlord his first year out of college, analyzed mortgages on a fixed-income trading desk, and acquired a New York real estate license. At RentHop, he combines his nerd talents and real estate knowledge to constantly tweak the secret HopScore. He currently lives near Bryant Park and his favorite restaurant was Cafe Zaiya (now known as Tomiz).

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