A, or THE, case for WeWork
Facebook succeeds by monetizing effectively the virtual community it builds. The community is virtual, so the monetization also happens in the virtual domain. In the case of Facebook, this monetization happens almost all in advertisement income.
So how much does Facebook make out of its user on this virtual monetization?
The chart above is from Facebook’s quarterly earning of Q2, 2019. Historically US & Canada contributes the most to ARPU for Facebook, unsurprisingly. Since we’re making a case for WeWork, let’s focus also on this geography.
As seen above, US & Canada users contributed a quarterly ARPU of $33.27 to Facebook in the last quarter. That’s about $11 per month. Given the huge user base of Facebook in US & Canada, this translates into huge revenue by just those two countries.
But compared to the actual consumer spending per month, $11 is like peanut. Any metropolitan resident would spend more than that on any dinner out, if not much more.
This is the truth of consumer spending. As fascinating as it sounds to make money out of a monopoly in a certain sector in advertisement, it ultimately accounts only for a small part of consumer spending.
Keep in mind that marketing (advertisement) is on top of the functional value that consumers pay cash for in any given product or service. It’s a big industry in highly developed economies such as US and Canada, but it’s still much smaller than fundamental spending of any living human being in these two countries.
As a comparison, if you’re a middle-class living in any urban area in US, you’re probably spending:
- $1,000~$2,500 per month on housing
- $150~$500 per month on transport
- $300~$800 per month on food
- $100~$1,000 per month on clothing
Any of these figures dwarfs that of the $11 that you supposed “contribute” to Facebook’s revenue every single month.
This is the case for WeWork.
What if Adam Neumann could actually build a community in the physical world that has such a strong emotional affiliation to the We brand, that its members are willing to use part or all of their monthly spending on housing, transport, food or clothing on We-related companies?
The ARPU will be at least 100x that of Facebook.
“But how about profitability?”
Well, Wall Street has shown us that they first and foremost care about “growth”. Quality of revenue is less of a concern at this moment if you have substantial growth year over year. A high top line (revenue) number will greatly help the argument as well.
This is why WeWork’s IPO and its strategy might just work, and why the market almost certainly won’t grab the LSE-listed Regus as a comp.
That’s my case for WeWork.
