WeWork files for IPO amid investor skepticism over deep losses
WeWork, a company that has shaken up the sleepy world of office rentals by adding a hipster aesthetic and beer taps to office life, became the latest Silicon Valley “unicorn” to file for an initial public offering (IPO) on Wednesday, revealing huge losses and rapid growth.
The nine-year-old company now runs offices in 111 cities worldwide with 527,000 members paying fees for access to a shared workspace in 29 countries across the world.
We Co, WeWork’s parent company, more than quadrupled its revenue from 2016 to 2018 to $1.82bn. At the same time the company lost close to $700m in the first half of 2019, $1.6bn in 2018, almost $900m in 2017, more than $400m in 2016, the filing shows.
In the prospectus We Co warns: “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 … for the foreseeable future.”
The share sale will be the latest test of investors’ appetite for fast growing companies that are making huge losses. This year has been the biggest for US IPOs since 2014, with fellow unicorns – private companies valued at over $1bn – Uber and Lyft making their much-awaited market debut.
The rideshare rivals, however, have struggled since listing, with investors wary of the pair’s billions of dollars in losses and the absence of a timetable to reach profitability.
The company was founded by Adam Neumann, 40, an entrepreneur whose previous businesses include a company making shoes with collapsible heels and baby clothes with built-in kneepads called Krawlers. Neither company took off.
He opened his first co-working space in Brooklyn, New York, with business partner Miguel McKelvey in 2008, and the business proved a hit with a new wave of entrepreneurs, supported by low interest rate loans and venture capital money, who were seeking office space for their startups.
Japan’s SoftBank is We Co’s largest investor and has invested about $10.5bn in the business. Its last investment, of $2bn, valued the company at $47bn. Much of that money comes from the SoftBank Vision Fund, largely backed by the Public Investment Fund of Saudi Arabia.
With its steep losses, WeWork faces some of the same headwinds that have held back Uber and Lyft. Its business model – based on short-term revenue agreements and long-term loan liabilities – has faced investor skepticism.
Still, revenue has surged as the company shakes up office leasing by offering startups and entrepreneurs short-term contracts in lieu of traditional long-term leases. It also generates greater revenue per square foot than landlords by squeezing more people into a space.
The company also warned that revenues per member will decline in future.
“Average revenue per WeWork membership has declined, and we expect it to continue to decline, as we expand internationally into lower-priced markets,” the company said in the regulatory filing.
Flexible office providers have dominated leasing in major cities, most notably London, New York and San Francisco, a sign of growing demand by companies and not just the startups and entrepreneurs that put coworking on the map. The Guardian uses WeWork space in the US and the company has attracted large clients including IBM and Microsoft.
While WeWork is the flagbearer, several operating models exist. The industry, which JLL estimates will account for 30% of leasing in a decade, is likely to end up like hotels with various services and customer niches.
We Co is expanding into other businesses including WeLive, apartment rentals, and education, WeGrow, but neither business has gained the traction of WeWork and in the prospectus the company warns these businesses too “may not generate meaningful revenue or cash flow”.