The question of a startup\u2019s valuation is not merely an academic one.<\/p>\n
WeWork is not your typical real estate company. Rather, according to CEO and cofounder Adam Neumann<\/a>, it\u2019s a \u201ccommunity<\/strong>\u201d and a \u201cstate of consciousness<\/strong>,\u201d bringing people together to \u201cchange the world.\u201d<\/strong> Investors agree: They think Neumann\u2019s sweeping vision is worth $20 billion at the very least, and maybe as much as $40 billion<\/a>.<\/p>\n But for all Neumann\u2019s ambition to expand beyond coworking and into housing, education<\/a>, and more, WeWork\u2019s core real estate business remains its primary source of revenue. The company charges a monthly fee for access to a desk or dedicated office, and it currently boasts 256,000 customers<\/a>, or \u201cmembers.\u201d In the first quarter of this year, those members generated $342 million in revenue, double last year.<\/p>\n That pace of growth sets WeWork apart from established office providers like IWG and Regus. But is it enough to justify a valuation of $20 billion, or $40 billion?<\/p>\n Not in the slightest, according to an analysis by the Financial Times<\/em><\/a>. Compare WeWork\u2019s revenue to those competitors, applying the same multiple, and Neumann\u2019s company is worth $3 billion, tops. Even compared to a startup unicorn like Airbnb, the FT<\/em> argues, WeWork\u2019s value appears inflated, based on sales.<\/p>\n Put another way, anyone willing to invest in WeWork at a $40 billion valuation would have to believe that each of the company\u2019s members is worth $156,250. Regus members, by contrast, are worth around $11,300<\/a>.<\/p>\n Of course, the FT<\/em>\u2018s conservative analysis is based on a snapshot of WeWork today, without taking into account the growth trajectories of the company\u2019s newer business lines. A few years from now, WeWork expects its enterprise business to comprise a considerably larger portion of sales, as it signs contracts with bigger and bigger customers. Forays into housing and education, while still unproven, hold similar promise.<\/p>\n Whether public markets ultimately value WeWork at $3 billion or $40 billion is no mere academic question. A company\u2019s valuation affects its ability to recruit talent, for example. It can also serve as a source of immediate wealth for founders, who are increasingly choosing to cash out some of their equity through secondary transactions, in advance of an exit.<\/p>\n