September has been a terrible month for WeWork, whose CEO stepped down, delayed its IPO until the end of 2019, and had its valuation cut by as much as 80% from as high as $50 billion just a month ago, to around $5-10 billion today. Consequently, there has been a plethora of stories about how WeWork is an indictment of capitalism, a tech bubble, and how the tech ‘house of cards’ must come falling down:
This is just a handful of the dozens or even hundreds of WeWork stories printed in the past week alone.
Maybe now, after nearly a decade of predicting a tech bubble burst and being wrong, the liberal media will finally be vindicated. This will be the end of sky-high valuations for money-losing companies and nosebleed real estate prices and rent in the Bay Area. No longer will money flow freely with supposed reckless abandon in the Silicon Valley. Order will be restored. Or not.
We’ve all heard this story before. The media always prematurely celebrates, only to keep losing as hope dissipates and things return to the way they were. This ebullience over WeWork reminds me of the left’s enthusiasm over the Mueller Report (“this is it…the moment we have been waiting 2 years for!!”) which was supposed to deliver a case for impeachment in a bow-wrapped package, that, when opened, would yield a case so self-evident and convincing that the question was not whether Trump would be impeached or not, but if he would resign like Nixon or fight it out. In reality, the report was a data dump that yielded a lot of noise and little, if any, of the precious signal or smoking gun the left was hoping for. Trump did a lot of things, some of them maybe of dubious legality, but nothing involving tampering with the 2016 election or colluding with Russia, which is what the left’s impeachment case hinged on.
As discussed before, the media has a terrible track record at this sort of stuff. They have frontrunned 20 of the past 2 crisis, to borrow a common expression. They said that Trump colluded with Russia: Wrong. They predicted a recession and stock crash if Trump won: Wrong. They predicted major civil unrest due to Trump winning: Wrong. They predicted economic crisis in Europe due to Brexit: Wrong. They predicted that Tesla would go out of business and the stock would crash due to losing too much money: Wrong (although tesla has fallen from as high as $400 to $240 today, it has gained nearly 1000% from 2010, when it was at $25) The said that Amazon stock is a bubble and would crash: Wrong (Amazon is now at $1800/’share and is profitable. Amazon makes so much money now that if its stock were at the same price it was in 2010, it would be very undervalued). They said in 2015 that Uber is a bubble and would crash. 4 years later, Uber is still worth $50 billion. They called Facebook a ‘fad’ and a bubble in 2010-2014: Wrong. (Facebook is worth $500 billion, on its way to being worth $1 trillion soon.) They blamed Facebook for costing Hillary the election and ‘destroying democracy,’ because it’s the ‘will of the people’ when democrats win and ‘cheating’ when they lose, obviously. They predicted in 2016-2018 that by 2019 Trump would be impeached or resign due to scandal: Wrong.
Of course, the right-wing media has its own FUD, too, such in 2008-2013 dire predictions about the national debt, dollar collapse, economic collapse, etc. that was all but certain to occur under Obama, but nothing even close to that happened. Interest paid on the national debt relative to GDP is the lowest in debates. Global bond yields keep falling, indicating that in spite of large national debts and budget deficits, that there is still insatiable demand for low-yielding debt. The US dollar is the highest it has been in years. Charlatans such as Peter Schiff made fortunes promoting bad investments such as overpriced gold and foreign currencies, while those who heeded his advice either lost a bunch of money or under-performed the S&P 500 badly. Same for all the hysteria about supposed socialism during Obama’s term, such as regarding the bank bailouts and Obamacare. In spite of all the dire predictions over the past decade about socialism, we’re a long, long way from actual socialism as in nationalized/socialized profits and Mao posters everywhere, but rather the welfare state and the private sector seem to be growing in parallel rather than the former subsuming the latter. S&P 500 profits are at record highs, as is billionaire wealth and bunch of other metrics of personal wealth. Similar to Trump talking a tough game on immigration but not doing that much, the same applies to the left regarding taxes: they talk a tough game but cannot deliver.
I think both the liberal and conservative media owe the public an apology for being wrong on so many things and spreading FUD. The public would be better served if the media focused more on accuracy and context than spreading narratives. That’s not to say the media cannot have opinions, but we need to call pundits out when they are wrong. Just as consumer products are rated and tested, such as on Amazon or in Consumer Reports, so too should pundits and the media also be subjected to a similar rating and screening process. The choice of media one consumes is as much of a choice as, say, a washing machine or an automobile.
So anyway, back to the main subject of this article, We Work. I am not saying that WeWork won’t fail. Rather, my point is that the media’s track record is terrible, and that the possible failure of WeWork needs to be put in perspective. For every company that fails, there are dozens that succeed. The possible failure of WeWork is not a harbinger for the end of capitalism or the end of the post-2009 Silicon Valley tech and economic boom, but rather is an isolated misfortune due to mismanagement and other factors. Out of all of the tech and web 2.0 companies that I can think of, the only major failure that comes to mind is Theranos. Even after Theranos was revealed to be a fraud and its valuation plunged from $10 billion to almost nothing, and in spite of the hype surrounding the company, it’s not like there was a contagion to other companies and the overall Silicon Valley economy, but rather it was an isolated event. That is a failure rate comparable to the corporate bond market, yet you don’t see the media writing dozens of articles a week about how the bond market is a failure of capitalism.
Regarding money-losing tech start-ups, as discussed earlier regarding Tesla, there is a difference between a company that is cash-flow positive but losing money due to capital investments, outlays, and various one-time expenses (such as paying out insiders during IPOs), versus a company that is unprofitable in both regards and has recurring losses in its business operations. Investors, VC funds knows this subtle difference, rather than it being a ‘failure of capitalism’. That is a reason why Tesla and Amazon stock have done so well over the past decade, because their businesses have huge growth and are profitable, but the losses are due to large one-time investments such as factories and infrastructure, as well as profits being reinvested. Tesla and Uber can borrow very cheaply and use the money to grow their revenues despite losing money. In spite of a decade of losses, Amazon has done so well in recent years that and makes so much money, in retrospect, capitalism did succeed. Regarding cash burn, I cannot recall ever seeing a tech valuation plunge because of financial losses, but rather due to loss of market share, declining growth, and declining profitability of business operations, which is what happened to Grupon, Zynga, Blackberry, GoPro, and FitBit, to name some notable examples of once high-flying tech companies that fell to earth. By the time solvency is a concern, the stock has already lost 80-90% of its value. If Tesla stock falls to $50 , as some are predicting, it won’t be because of large quarterly losses, but but because of slowing growth, competition, and fewer Teslas being sold.