Croxon: I'm 'aghast' at WeWork's financials
The brash founders of WeWork Cos., the global network of shared office spaces now on the cusp of going public, have officially stated their mission: “to elevate the world’s consciousness.”
Never mind making money first.
The signature grow-at-any-cost ethos of the unicorn era was on full display Wednesday as WeWork filed to go public after months of fevered speculation.
Having raised more than US$12 billion since its founding nine years ago, and having never turned a dime of profit, WeWork now hopes to sell billions of dollars in stock while simultaneously borrowing billions more.
It’s a tall order, particularly given the unsettled state of the global economy and financial markets. WeWork is not only chasing bold -- and possibly quixotic -- ambitions to transform the way the world lives and works. It also looking to transform when and how young companies can go public.
“WeWork is pushing ahead with an IPO despite an unclear path to profitability that could endanger its valuation,” said Bloomberg Intelligence Analyst Jeffrey Langbaum. “We believe the company will be hard-pressed to reverse losses as long as it pursues significant revenue growth.”
The losses, as laid out in the IPO prospectus, were stark: US$2.9 billion in the past three years and US$690 million in just the first six months of 2019. Still, the company said those losses resulted from continual investments in its growth. Its annual revenue more than doubled to US$1.8 billion in 2018 compared to US$886 million in the previous year.
“We have a history of losses,” it said in the filing with the U.S. Securities and Exchange Commission. “We cannot predict whether we will achieve profitability for the foreseeable future.”
Chief Executive Officer Adam Neumann faces persistent questions about WeWork’s propensity to burn cash. The company has described some of its more scrutinized expenses, including a flashy contest series that cost more than US$40 million, as a “critical means through which we express our key values.”
Another potential hurdle: unpredictable swings in the stock market as investors fret over trade tensions, Brexit and other issues. It may not be the best time to go public, as evidenced by the tepid reception to Uber Technologies Inc.’s debut in May.
“These broad market fluctuations may adversely affect the market price of our Class A common stock,” WeWork said in its filing.
In an unconventional move, there will be three classes of common stock at WeWork: Holders of Class A shares will have one vote each while Class B and Class C holders will have 20 votes for each share. That arrangement gives Neumann, who will control a majority of the voting power, outsize sway over picking board members and other matters subject to a shareholder vote.
The office-rental company listed an offering size of US$1 billion, which is typically a placeholder that will be revised when terms of the share sale are set later.
WeWork had been targeting a share sale of about US$3.5 billion in September, people familiar with the matter have said. That would make it the second-biggest IPO of the year, topped only by Uber Technologies’s US$8.1 billion listing. In parallel with the stock offering, WeWork has been in talks to raise as much as US$6 billion in debt.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. will be the lead underwriters on the offering. Executives from major banks had been courting the company for years.
The New York-based company said it could one day be profitable if it “stopped investing in our growth.” WeWork said only 30 per cent of its open locations are “mature” and that 70 per cent of its locations had been open for two years or less. It also has a revenue backlog of US$4 billion, eight times its backlog last year, it added.
The full-year net loss attributable to the company widened more than 80 per cent to US$1.6 billion, from a loss of US$883.9 million in 2017. It lost about US$430 million in 2016.
SoftBank Group Corp. is the company’s largest backer and has valued the business at US$47 billion. It has invested about US$10.7 billion in WeWork since the start of 2017 and holds a board seat, according to the filing.
WeWork is by far the most valuable co-working business, though numerous rivals around the world are trying to lure away members.
WeWork -- which changed its name to the We Co. in a diversification move earlier this year -- has in recent weeks been looking to raise a significant amount of debt. It was seeking to borrow US$2 billion through a letter-of-credit facility and US$4 billion from a delayed-draw term loan, Bloomberg previously reported.
Banks will have to make good on their commitments only if at least US$3 billion is raised in the IPO. It confirmed in the filing that it entered into a commitment letter this month for a credit facility of as much as USUS$6 billion.
The company plans to list shares under the symbol “WE,” although the exchange wasn’t listed.
--With assistance from Michael Hytha, Drew Singer, Gillian Tan and Sonali Basak