Dr. Gleb Tsipursky – The Office Whisperer
Nirit Cohen – WorkFutures
Angela Howard – Culture Expert
Drew Jones – Design & Innovation
Jonathan Price – CRE & Flex Expert
- August 14, 2019, is the day that WeWork officially filed to raise $1 billion in an initial public offering.
- However, the publication of its prospectus reveals huge losses and debts, with no time frame to become profitable.
- It also shows concerning reliance on CEO Adam Neumann and states that the company’s success “depends in large part” on his continued service.
On Wednesday, WeWork filed to raise $1 billion in an initial public offering amid increasing investor skepticism.
The company will trade under the name We, its membership base has grown over 100% every year since 2014, and the company estimates a total addressable market opportunity of $3.0 trillion across its 280 target cities.
Suggested Reading: “SoftBank Slashes WeWork’s Investment from $16bn to $2bn”
While the above sounds promising, the We company’s financials are far from it.
In the first six months of 2019, the company generated $1.54 billion in revenue but posted a net loss of $689.7 million. The company’s revenue has doubled, mostly due to increased memberships from new centers; however, “average revenue per WeWork membership has declined, and [is expected] to continue to decline.”
Unsurprisingly, the company’s prospectus states that We has a history of losses, one that reached $1.9 billion in 2018. The company’s prospectus states that its “undiscounted minimum lease cost payment obligations under signed operating and finance leases was $47.2 billion as of June 30, 2019.”
There’s also the topic of We’s indebtedness. As of June 30th, 2019, the company had existing consolidated long-term debt of $1,342.7 million, of which $669.0 million is to be paid in 2025. The company has also secured $6 billion in debt from JPMorgan Chase & Co and Goldman Sachs Group Inc., which will close at the time of We’s IPO.
Suggested Reading: “WeWork’s IPO Structure Could Help It Avoid Certain Taxes”
More concerning, at least for investors, should be the fact that the company did not include a time frame to become profitable.
The 9 year old company is yet to report a profit, and based on the prospectus, profitability does not seem to be a priority. The We Company will be focusing on growth, much as it has over the past nine years, regardless of the fact that it comes with steep losses.
Suggested Reading: “WeWork’s Bond Debt Is Trading at Sub-Par Value, Here’s Why that Matters”
The company’s success or failure could very well be in the hands of its CEO and co-founder Adam Neumann, more specifically on his energy. Neumann has publicly stated that the company’s valuation has less to do with numbers and more to do with spirit and energy.
Furthermore, the company’s prospectus includes its CEO as a risk factor, stating that “our success depends in large part on the continued service of Adam Neumann (…) which cannot be ensured or guaranteed.” Neumann has been criticized in the past for conflicts of interest — he purchased buildings that he then leased out to WeWork, he was also criticized for having cashed out $700 million in stock ahead of the company’s IPO, and to top it off, he was awarded with a bonus for conducting the IPO.
“As the Company grew, our board of directors desired to provide a significant incentive to Adam to conduct an initial public offering”.
Neumann controls a majority of the company’s power, and he could limit the ability of other stakeholders to influence corporate activities and, “as a result, we may take actions that stockholders other than Adam do not view as beneficial” — one example could be the stockholder’s potential desire to slow down growth in order to generate a profit.
Suggested Reading: “Without Constant Reinvention, WeWork’s Valuation could Crumble”
As it currently stands and with its financials disclosed, the We Company might have a hard time justifying its lofty $47 billion valuation, especially when it’s compared to International Workplace Group Inc. (IWG). IWG is a direct competitor to WeWork, it generates a profit, and yet it is only valued at $4.5 billion.
