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Manhattan Institute

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WeWork's Downfall Shows How Ridiculously Overvalued So Many Startups Are

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WeWork's Downfall Shows How Ridiculously Overvalued So Many Startups Are

CNN Business September 26, 2019
EconomicsOther

After weeks of grappling with a failed initial public offering, the board of WeWork this week forced charismatic cofounder and CEO Adam Neumann out of his post. The strange rise and apparent fall of the office-sharing company may represent a turning point for the economy — and a much-needed correction. The past decade has seen the emergence of an odd, and not particularly healthy, strain of capitalism: supposed corporate superstars that not only lose billions of dollars, but don't expect to earn profits anytime soon.

This trend is distorting the definition of success in a free-market economy. And the more distorted markets get, the harder it is to convince the public that capitalism is working.

The fact that WeWork almost went public is absurd. WeWork is a commercial real-estate outfit that rents big blocks of office space from landlords in cities such as New York and London and then turns around and re-rents the space out to small companies after some interior decoration. But though office rental is generally a profitable business, and has been for hundreds of years, WeWork operates at a huge loss: It burned through more than $1.5 billion in the first half of this year.

WeWork is not alone. Uber and Lyft, the ride-hailing companies, did go public this year despite recording billions of dollars in losses. Uber was able to list itself on the public market without proving its business model was commercially viable. The company has reported $6.2 billion worth of losses in its first two quarters as a publicly traded company. Lyft, its 7-year-old rival, reported $1.7 billion in losses during its first two quarters.

Continue reading the entire piece here at CNN Business

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Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.

Photo: Scott Olson/Getty Images

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