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WeWork Takes a Dip in the Wave-Pool Business

The Wall Street Journal logo The Wall Street Journal 4 days ago Eliot Brown

WeWork Cos. has attained a $20 billion valuation as an office-leasing company. But its ambitions are extending well beyond the workplace—and into the water.

The seven-year-old New York company has purchased a large stake in Wavegarden, a maker of wave pools, according to people informed by WeWork Chief Executive Adam Neumann in recent months. A WeWork spokeswoman said the investment occurred in mid-2016.

It isn’t clear how Wavegarden—whose technology creates artificial waves up to 8 feet high for surfing at giant water facilities—would fit with WeWork, which takes on long-term leases for offices and remodels them into common spaces with a hip, millennial-conscious vibe.

The deal is part of a blitz of acquisitions and new ventures apparently designed to thrust WeWork past the office-subleasing business that makes up the vast majority of its revenue, which annualized totals more than $1 billion.

Within the past month, WeWork launched fitness club Rise by We; bought a coding academy called the Flatiron School that offers crash courses in tech; and announced plans for an elementary school called WeGrow that aspires to teach children about the virtues of entrepreneurship. WeWork is also planning endeavors into numerous other areas including retail and music, according to multiple people who have spoken with WeWork executives.

A WeWork spokesman said in an email the company has “made meaningful investments to significantly enhance our product offering.”

WeWork’s expansion spree into disparate services further muddles the blueprint of one of the most valuable U.S. startups. Mr. Neumann has wavered over defining the company, stressing it isn’t a real-estate firm. At various times, he and other executives have described it as a community company, a lifestyle company and a platform for entrepreneurs.

When Mr. Neumann was asked about WeWork’s business category at a TechCrunch event in May, he said it is still a work in progress. “We ourselves are still discovering what is the best type of company that we want to be,” he said. “We’re taking best practices out of the for-profit world and best practices out of the nonprofit world.”

He added that companies that accomplish this would be given a “really exciting multiple” by investors, meaning a high valuation.

WeWork is among a crop of startups with sky-high valuations that are expanding into side business and crafting long-term growth stories to move beyond their central businesses. The chief executive of Airbnb Inc., valued at $31 billion, has described the home-rental site as a “holistic travel” agency that now offers excursions, restaurant reservations and eventually flights and car rentals.

Such an 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 has struggled with newer business lines. Its residential adult dorm-like offering called WeLive in 2014 was projected to make up nearly 20% of revenue by now. Today it has just two locations, well below the 34 projected for 2017.

Meanwhile, Mr. Neumann has said for years that sales of services like software and human resources would eventually make up a sizable part of the business. But growth has been slower than anticipated, according to multiple former employees. Services accounted for 5.1% of revenue in July, up from 3.9% in August 2016, according to numbers provided by WeWork.

The cost of the acquisitions and expansions is unclear. But WeWork is flush with cash after raising $1.7 billion for its main business—and an additional $1.4 billion for expansion in Asia—from SoftBank Group Corp. over the summer.

The surfing acquisition marks the furthest-afield from WeWork’s core business.

a man riding a wave on a surfboard in the water© AFP/Getty Images

Mr. Neumann, 38 years old, is an avid surfer. He frequently enjoys the sport from his house in the Hamptons on Long Island, as well as in trips to Hawaii, according to friends and colleagues.

Wavegarden allows fans like Mr. Neumann to surf far way from the ocean. The Spanish company, founded in 2005, makes water facilities with technology that rapidly makes waves much larger than those in typical water-park wave pools. Wavegarden’s website says a small facility—what it calls a “Cove”—costs about €14 million, or $16.5 million. Only two Wavegarden facilities are open to the public so far: one in the U.K. and one in Austin, Texas.

Doug Coors, scion of the Coors beer fortune, in 2015 opened the NLand Surf Park in Austin, which has a Wavegarden facility about 45 times the size of an Olympic swimming pool. Surfers pay as much as $90 an hour to hit the waves. He said in an email he was drawn in immediately upon seeing a prototype in Spain.

“We are trying to expand the sport to include people who live further inland,” he said. “We see big potential there.”

Corrections & Amplifications WeWork Cos. purchased a large stake in wave-pool maker Wavegarden in mid-2016, according to a WeWork spokeswoman. A previous version of the article said WeWork made the purchase in recent months, according to people who were informed by WeWork’s chief executive. (Nov. 15, 2017)

Write to Eliot Brown at eliot.brown@wsj.com

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