WeWork’s IPO shows losses at par with revenue growth
After a few months of confidentially filing for IPO, The We Company, parent company of WeWork, has revealed its IPO filing, looking to raise $1 billion through the sale of shares.
According to the numbers it has disclosed in the S-1 form used for SEC filings, WeWork’s revenues in 2018 accounted to $1.8 billion — double of what it garnered in 2017. However, loss accounted for in the same period was $1.9 billion.
In the first half of 2019, it reported a loss of $904.6 million on revenues of $1.54 billion. Its rate of revenue increase is almost double every year, which is what has attracted investors’ fundings in the company.
“We have grown significantly since our inception. Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.”WeWork writes in the S-1 filing
There is no doubt that its revenues are growing, as it is expanding to more markets. Currently, it is present in 528 locations across 111 cities around the world, with 527,000 memberships — and it is expanding fast. It plans to open co-working spaces in 169 additional location and has 149 million potential members.
TechCrunch reported that WeWork “hopes to reach 255 million people across 280 target cities — a market opportunity worth an eye-popping $1.6 trillion, or more than that of Apple and Microsoft.”
However, the rate of losses incurred by WeWork is making many wonder whether it can provide sustainable profits in the long run. Here’s why:
WeWork’s model is not unique. There are many other in various markets that provide co-working spaces at discounted rates, giving people the same if not more facilities such as free tea and coffee, ping pong tables and such. While it calls itself a tech company, WeWork isn’t anything more than a commercial real estate company that leases out space for co-working, i.e., it does not have a unique USP that distinguishes itself strongly in the markets.
The revenues from tenants is going down. WeWork attributes these to its expansion to emerging markets where the rents are lower due to the inability of people to pay on par with its international standards. Moreover, it offers rent breaks and discounts to tenants to lure them towards signing longer-term leases, which naturally adds to its losses.
While WeWork’s losses can be argued to be due to its rapid expansion, a closer look reveals its operational costs are just slightly lower than the revenues it is generating from the operational buildings. With smaller margins in an increasingly fragmented commercial real estate market, even a bullish expansion can prove difficult for WeWork to turn around its bottom lines to show profits.
Since its inception in 2011, the real estate company has raised a total of $8.5 billion in a combination of debt and equity funding. WeWork going public will benefit all its investors who are looking to exit, especially due to the uncertainty. Among the biggest winners of the exit are SoftBank and JP Morgan with 114 million and 33 million pre-IPO shares respectively.
Valued at $47 billion earlier this year, WeWork is rumoured to be the biggest IPO after Uber in 2019.