Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
Yesterday afternoon, the Wall Street Journal reported that WeWork has now raised an additional US$1 billion in debt, this time from SoftBank–which has already invested $4.4 billion in equity funding in the coworking company. According to the WSJ, WeWork’s losses have more than tripled in the first half of 2018, reaching the amount of $723 million.
WeWork’s revenues the first half of this year have, reportedly, more than doubled to $763.8 million. However, WeWork is paying a high price for growth. Last year the company “logged a net loss of $933 million, and it is on pace to easily surpass that figure this year.”
Fortunately for WeWork, it has proven itself quite able to raise debt funds. However, this does bring the question forth on whether or not the company is struggling to raise equity an at effective rate as it used to do before. WeWork doesn’t seem to be worried about this.
“On the call with bond investors, Mr. Minson said: ‘I will say at this level of operating performance, there is strong interest in WeWork equity from a number of large institutions.’” This much, though, is yet to be seen.
WeWork’s valuation has been questioned by experts both within and outside of the flexible workspace industry. Most recently International Workplace Group’s inability to sell for less than £3 billion has raised even further doubts on WeWork’s actual worth. In fact, WeWork’s junk bonds sale and this newly raised debt add up to almost $2 billion. This is just a bit below IWG’s full value (£2.8 bn), which six companies have already refused to pay, even though it is a profitable company that continues to grow and that is also very much debt free.
If WeWork ever goes public–which Adam Neumann has already stated will happen–how will they trade and how will this debt impact their trading value? If we use IWG’s example, chances are their $20 billion valuation isn’t likely to hold up.
Moreover, it is hard to compare WeWork’s revenue vs its costs. WeWork’s Financial Chief, Artie Minson, told the WSJ that, “there’s a mismatch between when we’re spending the money and when we’ll begin to generate revenue from those buildings.” It’s therefore hard to determine if the gap of the losses relative to its revenues is widening or shrinking. It seems that this is one question that WeWork’s Financial Chief should definitely be able to answer.
Additionally, “WeWork’s revenue per user ‘declined slightly,’ said Mr. Minson on the call with bond investors Thursday.” Last year (2017), WeWork’s revenue per user also fell 6.2%. Meaning that while WeWork is continuously growing at an accelerated pace, it’s not profiting as much per location as it used to.
So the question here is, how will WeWork outgrow its losses if it continues to pile up debt? We’d certainly like to see an answer to that…and soon.
