Chasing Software Revenues

Morning Markets: WeWork snags another software company. Why?

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WeWork, recently renamed as “We,” has bought another software company. As TechCrunch reports, WeWork’s new acquisition, Euclid, marks the coworking unicorn’s second software buy in about half a year. WeWork bought Teem last September.

It’s also another entry in a growing log of software companies that WeWork has bought, which I detailed here. Among the purchases are Unomy (sales and marketing software) and Welkio (sign-in software for offices).

The continued decision by WeWork to acquire software shops is notable because the company’s main business — renting out spaces, sprucing them up, and renting them back to tenants large and small — is only so related. Some things that WeWork has bought can plug into its own real estate service, certainly, but I wonder if the larger firm is also trying to buy a collection of parts that it could fuse to form a material bucket of software revenue.

WeWork has a famously high valuation, one that is out of sync with public-market comps. So the SoftBank-backed WeWork will need to have something, eventually, to convince public market investors that it is worth as much as it thinks that it is. One good way to do so would be to diversify its revenue so that it was only partially a real estate company, that it is also, say, a software company.

Software companies have high gross margins, often sport recurring revenue, and are generally liked and understood by investors in today’s market. If WeWork can append a growing sum of software revenue to itself, it can argue that its growth business (smaller sums can grow more quickly than larger sums, in percentage terms) is bringing lots of good margin to its overall results.

Investors might like that! Who knows what amount of software revenue WeWork would need to make the gambit work, but as the well-backed company continues to accrete software companies we can’t discount the possibility. With nearly a dozen acquisitions under its belt, we’ll see what it buys next.

Top Image Credit: Li-Anne Dias.