WeWork Parent Company's Financials Raise Concerns in IPO Filing

August 14, 2019

UPDATED: 5:12 p.m ET, August 14, 2019

The We Company, parent company of WeWork, officially shared details into its plan to go public with the release of its S-1 filing on Wednesday, but some of the key numbers have raised questions.

Born nine years ago in New York, WeWork has made a business of acquiring large real-estate holdings, remodeling those spaces into coworking arrangements, and then offering short-term leases to individual workers and small businesses.

The S-1 filing reports that the We Company grew revenues to more than $1.8 billion in 2018. But it also detailed growing net losses, which were under half a billion in 2016, and grew to $1.9 billion by the end of 2018.

In the first half of this year, the company saw revenue upwards of $1.5 billion and net losses of just over $900 million. The company had previously been valued overall at $47 billion by the Japanese firm Softbank.

WeWork has tried distinguished itself with its highly curated, Instagram-ready office spaces, though some analysts are wary that the brand alone makes the company a great investment.

"What is it about WeWork that stands apart from another office space? Does it demand a brand?" asks John Jannarone, the publisher of IPO Edge. "What sort of brand power do they have over other guys? We've discussed this time and time again with Lyft and Uber."

The filing also notes that WeWork has been able to extend the length of its membership agreements from eight to 15 months over the past two years, a sign of stability.

But Jannarone notes that, "In the event that things started to go downhill, these guys could be in serious trouble because they'd be stuck with all that space."

Jane Leung, the chief investment officer at Scenic Advisement, warns that could be a concern should in the event of a recession.

"They were founded in 2010, after the last big recession, so they've never really seen any market downturns," she said. "We saw today's market down 800 points. Pretty, pretty scary."

"We're going to see whether a company like WeWork — which is extremely asset heavy and really got a lot of complex financings and long-term leases — whether or not they can weather that kind of a storm storm?" said Leung. "If their clients or tenants aren't able to pay and they've got to cut their short-term leases, this is going to be a problem for the company's profitability and growth overall."

In recent years, the company has also expanded into co-living, children's education, and wellness through its Rise subsidiary fitness studios. WeWork alone reports 528 locations in more than 100 cities around the world.

"There's a lot of questions around what is it. Is it a real estate company? Is it a technology company? How is that going to fare against some big, high-profile IPOs like Uber?" asked Jane Leung, the chief investment officer at Scenic Advisement. She also warned that the company's true worth might be much lower than $47 billion.

The S-1 filing comes about a month after the Wall Street Journal reported that the company's co-founder and CEO Adam Neumann had cashed out at least $700 million in stock and debt, which made some potential investors nervous.

The company plans to trade under the ticker WE, and aims to go public as early as September.

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