Three Reasons that Drives the Overpricing of WeWork Discussion Questions
Description
WeWork
https://www.youtube.com/watch?v=X2LwIiKhczo (Links to an external site.)
Please watch the video, and explain
1) Name at least three reasons that drives the overpricing of WeWork
2) Name at lest three reasons that drove the collapse of WeWork.
3) Clearly, the uncertainty incorporated in the ventures would play a factor here. if you are the investors, facing the up-rally or down-fall of WeWork, what would you do to reduce the risk, or benefit from the potential return, or both?
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Discussion reply
The Spectacular Rise and Fall of WeWork
1) Name at least three reasons that drives the overpricing of WeWork
The 47 billion dollar market cap that WeWork once held was an overpricing like no
other company, and it got to the same valuation of well-established companies like
Adidas, Kraft Heinz, Xiaomi, and Marathon Petroleum.
The excitement and wrong insight of investors, starting with the 20 Billion
contribution by Softbank, was the major contribution to the overpricing of WeWork.
Pressure from SoftBank and ideas of rapid growth by Adam Neumann in addition to
more Billions investment by SoftBank over the following years, grow even more the
overpricing valuation of the company. This artificial market cap created a bubble
wherein paper the company was growing like no other company, however, they did not
stand a chance with the revenue companies with similar market cap.
2) Name at least three reasons that drove the collapse of WeWork.
A) Lack of board oversight
B) high personal expenses by the company management
C) Compared with similar players in the industry as “IWG,” it was evident that WeWork
was bigger by sq ft, members locations, number of locations, international presence; the
only discrepancy was that “IWG” was making profit while WeWork with thirteen times
the valuation, was loosing money year by year.
3) Clearly, the uncertainty incorporated in the ventures would play a factor here. if you
are the investors facing the up-rally or down-fall of WeWork, what would you do to
reduce the risk, or benefit from the potential return, or both?
If I were an investor for WeWork, I would create a sell option that sells any stocks of
the company automatically for the same price I bought them, and then I would conduct
a risk analysis to figure out at what price I’m comfortable selling the stocks. Then I
would create another sell option that would activate if the price gets to the real
valuation I think the company is worth. By doing this system, I eliminated the risk and
emotions I could get for the company and made an educated assumption of the
company’s real valuation to avoid any loss on my money and any greed I may have
towards the rapid increase in WeWork stock price.
References:
Companies ranked by market cap – page 4. CompaniesMarketCap.com – companies
ranked by market capitalization. (n.d.). Retrieved March 22, 2022, from
https://companiesmarketcap.com/page/4/
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