Below is the transcript of a CNBC interview with Samit Chopra, Managing Director (Pacific), WeWork. The interview played out in CNBC's latest episode of Managing Asia on 9 October 2020, 5:30PM SG/HK (in APAC). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan (CT): You're leading WeWork out here in the region at the time when the whole world is grappling with a pandemic crisis, given all your years in the real estate industry, has it prepared you for anything like this, what you're facing?
Samit Chopra (SC): Well, first of all, thanks for having me, Christine. Nothing can prepare you for something like what we're experiencing right now, with over 30 million people infected through the pandemic, over close to a million dead It is an earth-shattering calamity that we've all had to deal with over the past six months or so. Asia Pacific has been fortunate to have recovered or in the process of recovering faster than other parts of the world, especially as we compare ourselves to the European region or the Americas. So, we expect that Asian recovery from an economic perspective will be faster. It might look like a "W-shaped" recovery, and not a "V-shaped" recovery which some of us were hoping for. But preparing for where we go from here is what we are spending most of our time these days. How do we continue to invest in more client-centric product solutions, technology solutions? How do we leverage the immense and amazing talent base that we have within the organization, and focus our attention on growing alongside our client demands over the next 12 to 36 months when things start to get back to normal. So, right now, it's trying to retain what we have, optimize what we have, and then hopefully, in the near future start to grow again alongside our clients.
CT: WeWork has been through a pretty rough patch. First, there was the botched IPO attempt, then the pandemic struck, tell us about the aggressive cost cutting the company had to take and how painful it was?
SC: I often use the analogy, I don't know if you're familiar with cricket, but I come from India and cricket is religion there. In a one-day cricket game, there are three phases. The first 15-overs, which is where you try and hit score as many runs as possible and not lose any wickets. The next 30-overs is when you consolidate. The final 15-overs is when you try and score the most number of runs. WeWork in the last few years has been operating or playing like it was the first 15-overs. We were very aggressive, we tried to score a lot of runs, we expanded very, very rapidly over a short amount of time. But unfortunately, we also lost a few wickets. I feel now we're in the second kind of phase of the cricket game, where we need to consolidate, look at how do we optimize our existing portfolio, be a little more smart about cost and investment, so that we are well-positioned to excel again in the last 15 overs or the next 15 overs where we'd like to grow again alongside our client demands.
CT: How many people did you have to lay off here in the region?
SC: I don't know the exact number in the Pacific region, but globally, I think it was close to about 2000 people, which again, is always the last resort for any business or any leader to have to adopt. But given the circumstances, I would say primarily because of the onset of the pandemic and the sudden kind of impact that our business and all businesses around the world felt, we had to be smarter about reducing costs. We, of course, started with the biggest cost component for our company, which was the real estate underlying costs. We worked alongside our landlord partners across the world to rationalize that. We also then looked at our functional and overhead costs, which unfortunately, involved and included trimming our workforce a little bit as well, so that we are well positioned to be profitable, hopefully, in the next 12 months and continue this organization in the right direction and push us in the right direction.
CT: You and I know that real estate is not cheap, has the pandemic allowed you the opportunity to renegotiate better leasing terms with landlords in the locations you occupy out here in Asia?
SC: Yes, WeWork is, along with being a client-centric organization, is also a very partnership-centric organization. We see and have treated all of our landlord partners around the world as partners. We have gone to them during these times and in an amicable way and manner, try to rationalize some of our underlying lease obligations. We received great cooperation from our landlord partners in that respect. I would say about between 20 and 25% of the lease obligations kind of remained untouched, but for a majority of them, we were able to rationalize underlying lease obligations in partnership with our landlords.
CT: You're essentially taking on these longer term leases for office space, while at the same time, your contracts with your tenants are shorter term in nature. (Yes) Have you been able to incentivize your rental customers to sign on longer leases with you?
SC: Yes, that has been the trend. I would say almost two, three years ago, we started to see an incremental change in the tenure of our lease commitments. For example, in the Pacific, that tenure of these commitments has grown almost three times over the last three years. The average term of our commitments are around 18 months now, it used to be nine months about two years ago. Most of our clients, especially on the enterprise side, which is about 50% of our global business, those clients are looking at WeWork more and more as a long-term partner. We are in fact talking to a few large clients here in the Pacific region, where we will be providing them their headquarters solution, which as you can imagine will be a very, very long-term commitment.
CT: We know that the pandemic has also pushed many of your rivals to offer discounts as well to try to lock in more tenants, (yes) not to mention landlords themselves are getting into the game, really bypassing co-working space providers like you, what are you doing to tackle this new and increasing competition?
SC: We need to stay focused on our strategy. WeWork, as you know, was a big disruptor in the real estate industry which is what actually attracted me to join WeWork as well. Then, over the next few years, after revolutionizing the co-working business - putting human experience at the center of real estate strategy, we then started to leverage that experience and that branding of the solutions we provide into the enterprise space. We kind of put the heart back in the workspace, if you will, and created a hospitality-, community- and design-centric solution which many enterprise clients wanted to bring into their core real estate strategy. Those kinds of traits that we have inherent in our business, they're very hard to replicate for any regional or even global competitor. Right now, the economic situation is tough, we are aware that many of our competitors are being more aggressive on pricing, but pricing is a short-term impact. To be with a company or a platform provider like WeWork is something which has a very distinct advantage over just a price or a short-term impact from a pricing discussion.
CT: WeWork has said that the pandemic would likely get in the way of financial targets. As part of senior management, what can you tell us about the company's path to profitability?
SC: My focus right now... I can very quickly summarize my strategy in the Pacific as rationalize, optimize and grow. So, we have gone through that rationalization phase, we will continue to do that in small tweaks over the next few months, at least for the balance of this year, and then be ready for that "W-shaped" recovery that I was talking about. As you can imagine, we are in a very uncertain space right now. Many large companies are trying to figure out what does this pandemic mean for their workforce strategy? There's a lot of chat about the future of work. As you know, I call it the future of workforce, because companies have to figure out how to balance the needs that their employees have, having now worked from home for such a long time, having challenges around social distancing in the workspace, employee security and well-being all being center stage now, for every corporation, those are a lot of variables that the company has to take into account as they figure out their employee strategy, their HR strategy, which will then translate into their real estate strategy. However, in this whole gamut of uncertainty, one thing that becomes more evident than before is the need for flexibility which is where our business platform or our core strategy comes in, to align what the short term needs of flexibility for our clients are with our solutions. Therefore, I believe that W-shaped recovery as as soon as things settle down more on the pandemic front, we will go into that final leg of growth.
CT: So, when is the earliest timeframe that WeWork can reach profitability?
SC: We've set ourselves a goal to be profitable next year, we are, I believe, well on our way. Actually, early this year in Q1, we had the largest revenue quarter ever in WeWork history, we had over a billion dollars in revenue. Q2 was slightly less, which was, as you can imagine, right smack in the middle of the pandemic, was still pretty good. We have been able to curtail our cash outflow, as you know, we are still kind of trying to turn the ship around in terms of profitability. But based on where our cost basis sits today and where we see the revenue growth kind of progressing or going in the next few months, we are quite confident that we will be profitable by next year.
CT: But in some markets in Asia, in Hong Kong, for instance, you've had to surrender some lease commitments. As you restructure your portfolio, which markets are you pulling out of and which ones are you expanding into?
SC: I can talk about the Pacific region. We are not pulling out of any markets. We have in fact grown over the past 12 months or so, we opened a few new locations in Australia. We are going to open a few new locations in Singapore. In fact, the building right next door to 21 Collier Quay, which was the old HSBC headquarters, will be one of our flagship locations across the region, over 200,000 square feet of space, 4000 desks. We have another building also in the Singapore CBD - 30 Raffles which will open next year. So, we are we are growing in markets, in sub-markets, where we believe that there will be a short-, medium-term demand from our large enterprise clients as well as our SMB clients. There will be some markets where we would like to rationalize our footprint a little bit.
CT: Like which ones?
SC: I think this could apply to markets like Malaysia or Vietnam, or Korea for that matter, which would, which would more be kind of, you know, tweaks to our portfolio, such that we can be profitable on an asset level as well as a market level. I believe that we picked the right markets, when we went into these markets a few years ago. We still a young business in Asia Pacific, but we went into the right markets, picked the right locations, perhaps we need to scale the size of that footprint a little bit, to be a little more well-positioned on an asset level to be profitable.
CT: Let's talk about the tenant mix, because the pandemic has taken on many small businesses, which make up a big portion of WeWork's tenants. Now, I believe you're shifting focus, focusing more on these larger corporates, what sort of progress have you made? And what's demand like for these larger companies?
SC: Our focus on what we call enterprise clients or these large corporates has shifted almost three, four years ago, There were some early adopters like UBS and IBM in the U.S. who started to leverage the WeWork platform for large real estate solutions. That trend has continued over the last few years.
Today, globally, about 48% of our business is with enterprise clients. In the Pacific, that number is even higher in about 50%. We are actually coming up with a couple of new solutions: one called All Access, where any client of ours can access our entire portfolio globally, of course when you start travelling. We're also launching something called On-Demand soon in the next few months, which will basically uberize the real estate solution or the flexi solution for the client where a client can utilize an office, a meeting room or a hot desk by the minute if they want. So, you know, those kinds of solutions we will continue to invest in, which will appeal equally I hope to the small to medium sector clients as well as large enterprise clients.
CT: Everyone remembers the botched IPO attempt of the company last year and the eventual ousting of co-founder and CEO Adam Neumann. When you look at the developments that have happened so far, what were some of the important lessons learned for the company?
SC: I was at the time working for a competitor of WeWork's. Even though I was working for the competition, no one kind of liked seeing what happened, obviously, because WeWork to me has always been the poster child of doing and, and kind of causing a big transformation in the real estate industry. We all wanted WeWork to succeed. I think the lessons from that were perhaps, at least from my personal perspective, was to have a little more measured growth than perhaps the quantum and the speed at which the WeWork business grew, especially 12 months before leading to the IPO. Also, the focus on profitability. It's a boring topic for companies, especially fast-paced, high-growth companies who want to focus on growth but not to lose focus on profitable growth which is exactly what our focus is today. So, I think those learnings have held us in good stead, it's given us a kind of a northstar in terms of what our strategy should be going forward. Under Sandeep's leadership, we are exactly focused on those things, focused on profitability in the short-, medium- and long-term.
CT: WeWork is backed by SoftBank, the world's biggest tech fund. It recently had to write down the value of its stake, just six months after it pumped billions to take control of the company. What sort of conversations are you and senior management having with SoftBank to turn the company around?
SC: Yes, SoftBank, obviously, is the largest, largest investor in WeWork. The write downs that you spoke about, those are purely financial view of an investment. However, the business view from SoftBank into WeWork couldn't be clearer. Recently, you know, SoftBank invested even more money into WeWork because they believe that ultimately, the WeWork business model, the strategy that we have, the client-centricity that we have, the talent that we have within the organization, is destined for long term success. They have complete trust in our global leadership team as well as our business strategy. They continue to be a partner, a guide and a coach through through our Executive Chairman, Mr. Marcelo Claure. So, I think we're well aligned with where we want to get to.
CT: Are they putting a lot of pressure on you to make the company profitable?
SC: I wouldn't call it pressure. It's kind of coaching us and guiding us and kind of sharing with us, the experience that SoftBank has in kind of working with so many companies from all different industries around the world. And that learning is so valuable for any company, and that's the value that SoftBank brings to our executive leadership team in pulling from all those experiences, sharing those with us, which then helps us chart our medium long-term strategy.
CT: Well, it's a tough time right now, because a pandemic is adding another layer of uncertainty to WeWork's future. As the Managing Director of Pacific in charge of markets like Korea, Australia, and Southeast Asia, what sort of leadership style are you going to provide to drive the company and its operations into recovery?
SC: Simply put, I think, be authentic, be engaging, and be innovative. So, to me, you know, to bring a little more authenticity, share with our teams openly where we have challenges and what we need to do to stall those challenges, you know, is necessary right now, you know, I don't like sugarcoating stuff, I don't like to kind of gloss over things, especially if things are challenging. Our team is as much part of the challenge and hopefully the solution as I am. I also want to be engaging, again, I have always believed that leaders should be what you know, kind of should have the ability to go 30,000 feet or 30 feet as necessary. Then finally, innovation has to be front and center for any company at this stage, and some of the solutions that I talked about earlier, like On Demand, All Access will be kind of poster child of that kind of a strategy.
CT: And finally, how do you see we work emerging from this pandemic crisis? Any plans to renew its IPO dream?
SC: We would hope so, sometime in the in the medium term, right now, our focus is hit some short-term milestones, the first one of which is to be profitable by next year. Once we are back on that: from the rationalized, optimized to the growth path, after a few years after we've hit that third milestone is probably when we might consider or think about an IPO, but nothing on the cards I would say in the short term.
CT: Thank you so much for talking to me.
SC: My pleasure.
Jessica Tan Shu En
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