Sink Or Swim? WeWork Makes A Splash In The Wave Pool Business

WeWork has purchased a large stake in Wavegarden, a maker of wave pools.

It’s been an ‘exciting’ couple of  months for WeWork. In the short span of two months, the coworking giant launched fitness club Rise by We, bought Lord & Taylor’s flagship building, announced plans to enter into the education business with WeGrow, and also was subject to strong industry criticism for its “marketing” tactics.

Recently, it became public knowledge that WeWork has entered into yet another business line: wave making pools. According to the Wall Street Journal, “the seven-year-old New York company has purchased a large stake in Wavegarden, a maker of wave pools.” Though the investment originally was made in mid-2016, it wasn’t until recently that Neumann brought the information to light.

WeWork has already been criticized for significantly detouring from its core business, and Wavegarden’s acquisition again raises questions behind the company’s motivation and strategy. According to the WSJ, “such expansion into new areas is fraught with risk. History is filled with examples of corporations–from General Electric Co. to Yahoo Inc.–that suffered after overextending into areas beyond their main competence.”

WeWork, in fact, has already been victim to this with their co-living project, WeLive. Launched halfway through 2016, WeLive was supposed to account for 21% of WeWork’s revenue by 2018, according to reports published at the time. The same documents stated that WeLive would cover 10.3 million square feet of real estate and serve over 34,000 members within the next three years. According to other news sources, WeWork had told investors that there would be 14 co-living residences up and running by the end of 2016.

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That, however hasn’t been the case. One and a half years after its launch, there are only 2 WeLive locations: one in New York and one in Virginia.

The concept, it turns out, wasn’t as appealing to the market as WeWork imagined it would be–or at least people were not willing to pay the full price for it. At the time of launch, WeLive was offering subsidized room rates; however, not long after its initial launch, WeLive raised its room prices, which went above market rates at the time and also eliminated subsidized options.

Back then WeWork also cut its earnings prediction from US$65 million to US$14 million, they slashed their 2016 profit forecast by 78%, their revenue estimate by 14%, and reported a 63% surge in negative cash flow.

Fast-forward to a year and a half later and WeWork is yet to be a profitable company, as was recently stated by Mr. Minson, WeWork’s finance chief, during an interview with The Wall Street Journal. Although in 2014 the coworking giant had projected it would have an income of US$500 million by 2017, “Mr. Minson said WeWork doesn’t expect profitability this year.”

Yet, even though WeWork hasn’t met its pitched goals, it continues to raise money from investors across the world, and the company is in no shortage of cash to make investments (however senseless they appear to outsiders) and venture into new business lines. Regarding WeWork’s Wavegarden acquisition, the only immediate and obvious connection some have made is Mr. Neumann’s passion for surfing–though it remains to be determined how wave making pools fit into WeWork’s growth and industry strategy.

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