WeWork

WeWork's IPO filing reveals $900M+ in losses and plenty of other concerns

August 14, 2019
Another highly anticipated IPO filing has crossed the wire.

The We Company, the parent of WeWork, has publicly filed its S-1 with the SEC and aims to raise $1 billion with its IPO. The New York-based business plans to trade under the ticker symbol WE as soon as September, after initially filing confidentially late last year. Specific details including the stock exchange and number of shares being offered were not disclosed.

WeWork is one of the most valuable VC-backed companies in the world and took over the top spot in the US after Uber went public in May. WeWork was valued at $47 billion in January, following a $2 billion investment from SoftBank. That more than doubled its valuation from its most recent round two years prior and represents a staggering increase of nearly 500x from the $97 million valuation the company reached with its Series A in 2012.

The idea for the now-mammoth co-working space provider/real estate manager was launched in 2008, when present-day CEO Adam Neumann and chief culture officer Miguel McKelvey founded Green Desk, an eco-friendly co-working space in Brooklyn. In 2010, the duo combined seven-figure profits from the sale of Green Desk with a $15 million investment from real estate mogul Joel Schreiber and established WeWork in New York's SoHo district.

Fast forward to 2019, and the company is aggressively pursuing growth with an abundance of recent acquisitions. WeWork has bought six companies so far this year. Most recently, reports surfaced in late July of the company pursuing an acquisition of SpaceIQ, a developer of workplace analytics software. In June, WeWork acquired Waltz, a provider of a real estate investment platform, and brand marketing agency Prolific Interactive, both for undisclosed amounts.

Key figures

As it relates to the future, here are some key financial figures and facts from WeWork's IPO filing:

Revenue
  • 1H 2019—$1.5 billion
  • 2018—$1.8 billion
  • 2017—$886 million

Net losses
  • 1H 2019—$905 million
  • 2018—$1.9 billion
  • 2017—$933 million

Cash & cash equivalents on hand
  • 1H 2019—$2.5 billion
  • 2018—$1.7 billion
  • 2017—$2 billion

WeWork memberships
  • 2019 (through June 30)—527,000
  • 2018—466,000
  • 2017—214,000

Big money, big questions

Like many of its venture-backed unicorn brethren, WeWork has been known to raise outsized funding rounds.

Most recently, it was revealed in January that SoftBank's Vision Fund was reportedly seeking a majority stake in the company with a $16 billion investment. However, the fund reportedly received backlash from its key investors, Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala Investment Company, over the proposed commitment. Ultimately, SoftBank settled on the comparatively small $2 billion round without the Vision Fund's involvement.

According to The Wall Street Journal, the LPs were believed to be unhappy with WeWork's real estate exposure (which both investors already have plenty of in their respective portfolios) and questioned its sky-high valuation, in addition to expressing displeasure over Adam Neumann's insistence of retaining control over the company despite SoftBank's potential majority stake. These complex reasons were joined by the simple element of both investors concluding that SoftBank had already invested upwards of $8 billion in WeWork—more than enough, according to the PIF and Mubadala.

Prior to this past winter's SoftBank drama, WeWork banked a $1.7 billion Series G at a $21.2 billion valuation in August 2017, following a $690 million Series F in October 2016 at a valuation of $16.9 billion.

CEO partially liquidates

More questions surrounding the company's outlook and its CEO surfaced after The Wall Street Journal reported that CEO Adam Neumann liquidated around $700 million of his stake in the company via share sales and debt borrowed against his shares, though he remained its largest shareholder. While it was initially unclear how large Neumann's total stake in the company was, the IPO filing revealed Neumann holds a $500 million line of credit from UBS, Stamford Branch, JPMorgan and Credit Suisse, with an unspecified amount of Class B shares as collateral. $380 million in principal was outstanding as of July 31.

Onlookers critical of the move suggested Neumann's liquidation move is a pessimistic sign of a lack of faith in the company's future, particularly as its IPO looms. At best, some in the industry, such as Benchmark partner Bill Gurley, argue such sales are the result of pressure from newer private investors trying to seize more control of the company from earlier investors, per the WSJ.

However, Neumann has reportedly sold shares during most fundraising rounds since 2014 and has also occasionally made additional share purchases via stock options. Additionally, it could be argued that Neumann's optimism for the company is retained via his debt, which holds his WeWork stake as collateral.

Perhaps more concerning to some than Neumann's company outlook is his record of buying property and then leasing it back to WeWork, a questionable move that was heavily employed by Sears CEO Eddie Lampert via Lampert's hedge fund and REIT firms. While there were many factors that led to Sears' demise, the worst-case scenario inherent to such a potential conflict of interest has been raised as a concern around WeWork as well.

Once the company becomes the latest VC-backed behemoth to transform into a publicly traded entity, Neumann's intentions—and WeWork's potential for profitability—will become more transparent with each quarterly earnings report.

Featured image courtesy of WeWork

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