WeWork files for IPO, joining wave of cash-burning startups going public

The New York Times

Posted at Apr 30 2019 08:56 AM | Updated as of Apr 30 2019 08:58 AM

People work in a WeWork common space in New York. The co-working space provider said on April 29, 2019 that it was planning to go public. Cole Wilson, The New York Times

Over 9 years, WeWork has grown from one work space in Manhattan into a global empire of trendily designed shared offices, business services and more.

Now WeWork is hoping that public investors believe the company can eventually turn a profit from that vision.

WeWork announced Monday that it filed confidentially in late December to go public, becoming the latest hot startup to consider heading to the stock markets.

Should the company follow through on its plans, its initial public offering would be among the most eagerly anticipated in recent years. It was valued at $47 billion in an investment this year.

The company helped take the idea of co-working — where it leases out commercial real estate, redesigns it for shared office space and sells memberships — to a new level of popularity. The business model gained cachet with trendy décor and, in many locations, beer and coffee on tap.

But those ambitions have come at a steep cost. The company’s revenue doubled in 2018, to $1.8 billion. But its losses more than doubled, to $1.9 billion — and show no signs of reversing anytime soon.

In its public announcement, WeWork said it filed a draft registration statement with the Securities and Exchange Commission on Dec. 28. That was after SoftBank, the Japanese technology conglomerate and one of the company’s biggest investors, opted not to buy a controlling stake in the business.

“We have regularly focused on how to take our business to the next level in every aspect,” Adam Neumann, WeWork’s CEO, wrote in a memorandum sent to employees Monday.

In his memo, which was reviewed by The New York Times, Neumann said that an amended document was filed with regulators last week.

Many of the biggest decacorns, or privately held companies with valuations of at least $10 billion, have filed to go public in the past several months. Among them are Lyft, the ride-hailing company, and Pinterest, the digital pin board. The biggest of them all, Uber, is expected to begin trading on the New York Stock Exchange in the coming weeks.

But within that cohort of IPO candidates, WeWork stands out for its combination of high flying ambitions and unsettled financial outlook.

It has become one of the biggest corporate landlords in the world, with about 401,000 memberships spread across 425 locations as of Dec. 31. Nearly two years ago, it bought the longtime Manhattan flagship of Lord & Taylor, the department store chain, to become its own global headquarters.

But it has sought to add more and more services, some of which appear only tenuously related to corporate life. Technically, its parent company is the We Co., whose stated mission is “to elevate the world’s consciousness.”

It bought Meetup, the service for bringing together aficionados of common interests like learning Dutch or knitting, in 2017. It opened a private school in Manhattan. And it invested in a wave-pool company.

That vision has won the company billions of dollars in funding from deep-pocketed investors. Chief among them is SoftBank, which has bet heavily on what it considers world-changing enterprises. Even after it decided not to buy the company, it put $2 billion into the business — bringing its total investment in WeWork to $10.5 billion.

WeWork executives defend their approach, arguing that they are seizing an opportunity.

“We’re looking at building this business out, not just maximizing profitability over the next one to two years,” said Michael Gross, the company’s vice chairman, last month.

It is the same argument that Uber, Lyft and others in this generation of technology darlings have made.

Investors in the public markets have appeared skeptical of companies that emphasize empire-building over breaking even for many years. Shares in Lyft were down 16 percent from their IPO price as of Monday’s market close, while those in the social media company Snap are down 34 percent from their debut price two years on.

And while WeWork has argued that it is in a strong financial position, with $6.6 billion in cash and committee capital as of 2018, critics worry that it could suffer if the economy worsens. Among the chief concerns is the company being trapped in long-term leases with a drop-off in subscribers.

Artie Minson, WeWork’s president, said in March that WeWork could become profitable if it decided to take the foot off the growth acceleration pedal. If investors, either on the private or public markets, stop pumping the company full of cash, it might need to pump those brakes sooner.

WeWork has also adopted some unusual financial measures to make the losses appear less severe. One is known as “community-adjusted Ebitda,” which excludes a host of costs such as stock-based compensation and marketing. By that measure, the company earned $467.1 million in 2018, double what it earned in 2017.

Though the company filed a registration statement with the Securities and Exchange Commission, it could still decide not to go public.

Even so, WeWork has begun asking investment banks to prepare pitches for underwriting roles for an IPO, according to a person with direct knowledge of the matter, who would speak only on the condition of anonymity. A spokesman for WeWork declined to comment.