WeWork Collateral Damage in India

The last couple of weeks have been a real shit show for WeWork. It all began when WeWork started it’s roadshow for its upcoming IPO which was being led by JP Morgan and Goldman Sachs. The IPO was targeting a USD $3.5 billion offering. WeWorks’ last valuation was at USD $47 billion based on their Series H raise from SoftBank back in January 2019.

The roadshow highlighted many of the issues that people have been complaining about, mainly their business model. They take on 10-15 year leases on buildings and then turn around and sell seats on a monthly basis. What really kicked up the negativity was a blog post by NYC Professor Scott Galloway titled WeWTF (click for blog post), and WTF was not We Truly Fine! The blog post highlighted many of the red-flags about the upcoming WeWork IPO. It’s fair to say the professor is probably not welcome at any WeWork facility around the world.

So how does the WeWork IPO train wreck lead to collateral damage in India? Well, there are 2 entities that will get affected – Embassy Group and OYO.

Let’s talk about Embassy Group first, they are a property developer based in Bangalore (Bengaluru) and the local JV partner in India for WeWork.

The JV entity is called WeWork India Management Pvt. Ltd., 30% is held by WeWork and the balance 70% is owned by the Embassy Group. In June 2019, they were hammering out valuations and it was reported the JV was worth USD $2.75 billion. Which meant if WeWork wanted to buy out the Embassy Group it had to fork over USD $1.9 billion. At the time of the negotiations WeWork was valued at $47 billion, but after all the drama some are now estimating the company to be worth under USD $10 billion. Which means there is NO WAY the India JV is worth USD $2.75 billion. If WeWork really has taken an 80% haircut then the JV is probably worth in the neighborhood of USD $600 million as the new enterprise valuation.

The other startup that is going to face valuation drama is Oyo. Oyo is backed by SoftBank which also happens to have funded WeWork and Uber. SoftBank seems to have a track record of going big on these bets and pushing for public market valuations even though these startups don’t make a dime in profit. Uber had the same drama with the founder before it’s IPO and was ultimately fired. Uber is currently trading at it’s all-time lows and has yet to figure out it’s path to profitability.

I’m pretty sure in the coming months we are going to hear about OYO along the same lines of these other SoftBank portfolio companies. In fact the NY Times recently had an article about SoftBank founder Masayoshi Son and how these bets may not turn out as expected. But don’t feel bad for Masa, some of his other bets have done fantastic. In 2000, SoftBank made its most successful investment ever – USD $20 million to a then fledgling Chinese Internet venture Alibaba. This investment turned into $60 billion when Alibaba went public in September 2014.

The Rally that Left Manpasand Behind

Friday, Sept 20th, 2019 will hopefully go down in Indian financial markets as the day the economic boom for the country got re-started. The markets zoomed over 1,900 points or 5.3% for their biggest gain in a decade. The fuse was lit by the Finance Minister Nirmala Sitharaman when she announced several economic measures that should help companies. The theory is that by helping companies they will invest and create more jobs which the economy sorely needs.

One company that completely missed this rally was Manpasand. In fact, it fell below Rs. 10 for the first time ever which is also it’s par value or face value.

I’ve been tracking this stock for a couple of years now. And I got to watch it go up and down and so glad I never invested a single Rupee in it.

The company has been around for 30 years and is a Gujarat-based juice manufacturing company. In 2011, it got private equity money from SAIF Partners a well-respected PE fund. (SAIF is a acronym for Softbank Asia Infrastructure Fund). Then in early 2015 it started a roadshow to build up enthusiasm for its upcoming Initial Public Offering (IPO). You can read the Red Herring prospectus here (PDF) to see how they pitched their offering. What is a Red Herring prospectus? click here.

In mid 2015, Manpasand finally got listed on the National Stock Exchange (NSE) at Rs. 150 a share. All was good and it looked like another example where PE money helped a company grow and everyone benefitted.

Then in May 2018, the wheels fell off when the auditor on record – Deloitte Haskin & Sells resigned. It’s pretty clear from the above chart where the stock ended after this revelation. The brokerage firm Motilal Oswal quickly issued a statement (PDF) saying it’s recommendation for the stock was “under review”. Let me be clear, when the auditor bails on a company that’s a very clear indicator you need to bail on the stock.

Had you sold when the auditor resigned, then at the worst you would have broken even from it’s IPO price. But, if you held on thinking the auditor resigned because they didn’t like the Gujurati food while auditing the client, then that’s on you.

Creators, Consumers and Commenters

I’ve had my YouTube channel going for about 10 months now and the experiment is going well, my goal was to create 1 video a month. For the past 10 years I have been a consumer of videos and I wanted to see what it’s like from a creators perspective what the YouTube platform is all about. I really thought it was about creators and consumers (people that consume the content), but there is a 3rd category…commenters. Let’s talk about these 3 categories of users.

  1. First up are the creators. I thought it would be easy to create content for YouTube but that’s just not the case. Video production is not easy and it’s one of the main reasons I stayed away from having a vlog but as I saw more and more content on video, it was clear that’s the future. Once you get past the video production drama you have to have interesting/compelling content and a style that people like. Now just upload content on a daily basis or every 2 to 3 days and you have a winning formula to monetize your YouTube channel. I would say 5% of the people are creators.
  2. The consumers. As with any property on the internet, you need people to view the content and also to view the ads that are inserted into the videos to get paid. These consumers are fickle, what’s hot one day can be dropped like a hot potato for another YouTube channel. This group makes up 80% of the overall audience and this is what most content creators are focused on.
  3. The commenters. Or as some creators call them…tormentors! This group makes up 15% of the audience and honestly it’s the one group I didn’t really think about till I started my own channel. Luckily my target audience is pretty sane but I’ve seen some channels where the comments section is a complete shit-show.

The comments section is a great way to get feedback and also get user engagement but it can also turn dark very quickly. In India, the YouTube comments section can be boiled down to 3 things that people end up fighting about if it gets heated:

  • BJP vs Congress (politics)
  • Hindu vs. Muslim (religion)
  • India vs. Pakistan (nationalism)

I’ll probably continue my YouTube experiment till the end of the year and then stop. It takes too much time to create quality content and I rather just blog here instead! Oh and I’m pretty sure no one wants to hear me talk about cars since there are 1000’s of channels that do the same thing.