Another loss making Unicorn company goes public. Main idea behind business is to make profit for owners & investors. If company is loss making for almost a decade it means that investors will plea for IPO.
Let’s take a look on The We Company (WeWork). As we all know for initial public offering any company has to present for public Form S-1 filled with United States Securities and Exchange Commission. All financial data in this article is based on S-1 form.
The We Company is intended to provide better day at work for lower cost “space-as-a-service” strategy. Flexible contract and no headache over office maintenance made WeWork as a benchmark in shared office market.
WeWork office opened in 2010, in 2019 there’s 528 locations in 111 cities across 29 countries.
The We Company redesign office space in order to make offices more appealing and less stressful. In all offices installed software which enable sale of value-added services (one-stop shop for all services and products). Access to WeWork office space done by acquired membership program. WeWork office is preferable not only by freelancers and start-ups but also by global enterprises. Space-as-a-service offering based on flexibility, global mobility, enhanced culture, variable & lower cost. WeWork is move-in (ready) workspace. WeWork members enjoy flexible number of workstations available on request.
WeWork is a rapidly growing company-owned. Only 30% of all locations are mature (opened more than 24 months ago and reached stable cash flow). Another 70% of all company’s locations are non-mature (opened les than 24 months ago and not yet cash flow stable).
For year ended on December 31, 2018 company released next financial results:
- Revenue $1.8 billion.
- Total expenses $3.5 billion.
- Loss from operations $1.7 billion.
- Net loss $1.9 billion.
For 6 months ended on June 30, 2019 company published next financial results:
- Revenue $1.5 billion.
- Total expenses $2.9 billion.
- Loss from operations $1.3 billion.
- Net loss $904 million.
Company is loss making with total expenses twice as revenue. Company’s workspace capacity is 604,000 and membership rate at 527,000. Enterprise membership program (more than 500 full time employees) currently on 40% level.
The We Company experienced rapid growth which could be risky if not managed properly. Also expected increase in capital expenditures and operating expenses (investment in additional locations, additional solutions, services & products, etc). Company rapidly expanding to new markets which is subject to legal, regulatory, economic and political risks.
The We Company has history of losses and may not achieve profitability in the foreseeable future. Company’s business is durable in any economic cycle but turnover might be reduced in case of economic downturn.
In non-U.S. jurisdictions WeWork entered into joint ventures (ChinaCo, JapanCo, PacificCo region). Joint venture agreement insure exclusive and preemptive rights for local partners. Extra rights may limit future growth in selected joint ventures. Company’s reputation means a lot. Any brand name misuse or cyber attack on client’s personal data may damage reputation and sales.
Office space maintenance, refurbishment and remediation cost a lot. Every new office have to match certain criteria (location, construction quality, size, etc). Also every office has to be decorated in order to local norms. As more new offices as more expenses. The We Company hold ownership interest in ARK (real estate acquisition and management platform). This is highly risky for loss making company. In real estate market strong competition.
Company have never declared or paid any dividends on capital stock and do not intend to pay dividends on class A & B common stock. All future earnings will be used for further growth.
Every WeWork office goes through 2 stage: pre-opening, open location. Pre-opening stage include finding potential location, singing it, building (renovation). First 24 months after opening every office considered non-mature, after 24 months office considered mature (makes sufficient turnover).
Company’s co-founder Adam Neumann (CEO and chairman of the Board) is married to another co-founder Rebekah Neumann (Chief Brand and Impact Officer). Adam Neumann holds big amount of shares and will benefit from company’s IPO. Biggest investor in WeWork is Softbank.
The We Company offering the shares of Class A common stock through the number of underwriters: J. P. Morgan Securities, Goldman Sachs & Co, BofA Securities, Barclays Capital, Citigroup Global Markets, Credit Suisse Securities (USA), HSBC Securities, UBS Securities, Wells Fargo Securities. The underwriters are committed to purchase all shares of Class A common stock offered by WeWork. Company agreed to pay $50 million to JP Morgan Chase Bank as a structuring fee. Since 2015 The We Company have Ernst & Young LLP as auditor.
The We Company valued at $47billion ahead of IPO. While IPO shares will be listed under the symbol “WE”. In order to diversify business and mitigate risks WeWork started WeGrow (school), WeLive (shared living space), Flatiron school (adults education), Meet-up (local group for networking), Conductor (marketing and data business), Rise By We (wellness business).
Company’s IPO will be interesting to watch because of $47 billion valuation, huge losses and need to raise $3.5billion from IPO.
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