11 big things: The strange world of WeWork

Last week brought two major IPO filings, the stunning fall of a former unicorn, a game-changing streaming media deal, and a few revealing details of the most valuable VC-backed company in the US about to go public

Kevin Dowd 20 August, 2019 | 2:23AM
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Where to begin? This week, WeWork unveiled one of the most anticipated IPO filings in recent memory, a rather confounding document about which many thousands of words could (and already have) been written. Buried within its 350-plus pages are a bunch of revealing, controversial and otherwise interesting nuggets about the most valuable VC-backed company in the US.

Missing, though, is any indication of how WeWork actually plans to make money anytime soon.

The past seven days brought two other major IPO filings, as well as the stunning fall of a former unicorn and a deal that could help shape the streaming wars to come. But our rundown of 11 things you need to know from the past week couldn't start with anyone other than WeWork:

1. WeIPO

There's a lot to say, and I'm still recovering from the devastating absence of the phrase "community-adjusted EBITDA" anywhere within WeWork's IPO prospectus. So let's just dive into the highlights, lowlights and other kinds of lights: 

• The most obvious question about WeWork is how it plans to make a profit. The New York-based company's IPO filing revealed run-rate revenue of US$3.3 billion, up 86% YoY, which is great; it also reported a net loss of more than US$1.9 billion for 2018, which is more than twice as much as the company lost in 2017, which is in turn more than twice as much as it lost in 2016. That part is not so great. 

The future "profitability profile" WeWork outlines in the prospectus is based on its existing locations maturing and generating additional cash. The company says it believes the timing of any future profitability "depends to a significant degree on levers we control," referring mainly to the planning of new locations. Fewer expensive new locations, the theory goes, would lead to fewer expenditures. Which seems fair enough. But this concept also seems to be at odds with WeWork's statements elsewhere in the filing that it plans to continue its rapid expansion. 

Perhaps the most relevant statement on the matter from the IPO filing is this: "We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future."

• It was difficult to ignore that the filing dropped during a week when the US stock markets experienced their biggest dip of 2019 and signs of a coming recession continued to mount. It's long been posited that WeWork's real estate-heavy business model could encounter stress if the economy turns south. Is it a hypothesis that's about to be tested? 

• The first two sentences of the filing really set the tone: "We are a community company committed to maximum global impact. Our mission is to elevate the world's consciousness." That's one way to describe a business that rents out office space, I suppose. I don't know how much it does to justify WeWork's on-paper valuation of US$47 billion. 

• Speaking of which, here's a list of companies that closed the week with market caps of less than $47 billion: Target, Tesla, Ford, FedEx, Delta Air Lines, Marathon Petroleum, Humana, Dollar General, eBay, Allstate, Thomson Reuters and General Mills. These aren't apples-to-apples comparisons, but again: WeWork posted a loss last year of nearly US$2 billion. 

• The business often cited as WeWork's closest analog on the public market is IWG, a European co-working space company that has more locations than WeWork and currently turns a profit. Its market cap at Friday's close: a bit shy of $4 billion. 

• I've got to get to Adam Neumann, I suppose. The filing certainly did: As Bloomberg noted, the name Adam appears 169 times across the whole of the prospectus. The most eyebrow-raising occurrence, in my opinion, came when WeWork revealed that, as part of its rebrand to "The We Company" earlier this year, it paid US$5.9 million to acquire the trademark related to the We name. The previous owner of those trademarks? None other than Neumann. The filing also confirms earlier reports that Neumann has leased buildings he owns back to WeWork, another unusual arrangement.

• WeWork will go public with a three-class share structure that will concentrate a large amount of power in Neumann's hands. It only adds to the quasi-messianic role that Neumann seems to play at the business. In its prospectus, WeWork says that its "future success depends in large part on the continued service of Adam Neumann," shortly before noting that the company has "no employment agreement in place with Adam, and there can be no assurance that Adam will continue to work for us or serve our interests in any capacity." Well alright then. 

• Another random note: If Neumann doesn't donate US$1 billion to charity in the next 10 years, his extensive voting rights will be cut in half. 
• I could keep going, but it's probably time to wrap this up. I didn't even get to the US$10.7 billion SoftBank has pumped into WeWork over the past three years, or various other Neumann-related self-dealings and conflicts of interest. If you're the sort of person who enjoys perusing financial documents (and you're reading this newsletter, aren't you?), I'd really suggest giving the whole thing a read. 

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About Author

Kevin Dowd  Kevin Dowd is a private equity writer at Pitchbook. 

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