WeWork owner The We Company on Wednesday published detailed financial statements for the first time, showing it lost more than $900 million in the first half of 2019 while revenue doubled, as it steps up preparations for an initial public offering next month.
The filing with the U.S. Securities and Exchange Commission underscores We Company’s rapid growth but also the billions of dollars it is investing to fund its expansion.
The IPO, planned for as early as September, will be a test of investor appetite for fast-growing companies with massive losses at a time when stock markets are in turmoil because of the prolonged trade war between the United States and China.
We Company’s business model – largely based on short-term revenue agreements with renters, and long-term loan liabilities from the properties it leases and manages – has drawn investor skepticism.
The IPO filing provides the most comprehensive financial picture yet of the company, co-founded in 2010 by its chief executive, Adam Neumann.
Among the disclosures in the filing, We Company reported a net loss of $904.65 million in the six months ended June, compared with a loss of $722.89 million a year earlier. Some $689.7 million of the losses were attributed to WeWork, by far its largest business division.
In the same period, the company’s revenue more than doubled to $1.54 billion.
To support that growth, We Company burned through $2.36 billion in cash, more than twice the amount it spent in the same period a year earlier.
The company did not give a time frame for becoming profitable as it continues to invest in expanding its operations.
“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 filing.
After the IPO, Neumann, 40, will retain more than 50% of the company’s voting power, leaving him with operational control of the business.
This is in keeping with the trend in recent years of start-ups leaving control in the hands of their founders after going public, ostensibly to ensure the company retains a longer-term focus. The practice has received some criticism from some investors, who argue it undermines corporate governance.
Neumann has not sold any shares of the company since October 2017 and does not plan to not sell shares in the IPO, We Company said in its filing.
IPO BOOM
We Company is looking to go public in the biggest year for U.S. IPOs since 2014, with the likes of Beyond Meat Inc and Zoom Video Communications Inc seeing their shares soar.
However, two of the year’s most high-profile companies to go public, Uber and peer Lyft Inc, have struggled since going public, with investors wary of the pair’s billions of dollars in losses and the absence of a timetable to reach profitability.
With its steep losses, WeWork faces some of the same headwinds.
Still, revenue has surged as the company shakes up office leasing by offering start-ups 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 was valued in January at $47 billion in a private fundraising round, according to data provider PitchBook.
The company, which operates 528 locations in 111 cities across 29 countries, said it expected to “expand aggressively in our existing cities as well as launch in up to 169 additional cities.”
Flexible office providers have dominated leasing in major gateway cities, most notably London, New York and San Francisco, a sign of growing demand by companies and not just the start-ups and entrepreneurs that put coworking on the map.
While WeWork is the flag bearer, several operating models exist. The industry, which JLL estimates will account for 30 percent of leasing in a decade, is likely to end up like hotels with various services and customer niches.
We Company also confirmed in the filing it had agreed to a new credit facility with a group of banks providing up to $6 billion to further fund its growth.
The company, whose current investors include Japan’s SoftBank Group Corp, did not disclose how much it is looking to raise in the IPO and what valuation it will aim for.
This will come in an amended IPO filing, which would precede a 10-day IPO road show to meet with potential investors.
The company will ultimately look to raise several billion dollars in the IPO following a substantial debt offering, Reuters has reported.
The company intends to list under the symbol “WE.”
J.P. Morgan Securities and Goldman Sachs are among a nine-member underwriting team for the IPO. (Reporting by Joshua Franklin in New York and Bharath Manjesh in Bengaluru Additional reporting by Herbert Lash in New York and Sweta Singh Editing by Lisa Shumaker and Saumyadeb Chakrabarty)