WeWork’s IPO filing decoded: How losses will continue and CEO will maintain control

WeWork’s IPO filing decoded: How losses will continue and CEO will maintain control
16 Aug, 2019

The We Company, the parent of shared workspaces provider WeWork, filed documents for its planned initial public offering (IPO) with the Security and Exchanges Commission.

Here are a few key takeaways from the filing of the SoftBank-backed company:

Revenue backlog

The company’s revenue backlog increased eight-fold to $4 billion as of June 30, 2019 as compared to $0.5 billion on December 31, 2017. The company attributed it to an increase in the average commitment term signed by clients with the company, which increased from eight months to 15 months.

Increasing losses

WeWork reported a net loss of $904 million for the first half of the calendar year 2019, up from $723 million in the corresponding period in 2018. The company registered a revenue of $1.5 billion compared to $763 million for H1 of 2018. The company said accumulated deficit and net losses are attributable to investments required to grow the business, including global expansion.

“We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future,” the filing said.

The net loss will continue to increase as a percentage of revenue in the near term, the filing added.

The company has a presence in 111 cities where it plans to expand aggressively and will be launching in 169 cities.

CEO’s control

The filing said chief executive Adam Neuman will continue to control the company, post the public offering, giving him 20 votes per share for the class of shares owned by him.

“Adam Neumann will control a majority of our voting stock upon completion of this offering,” said the S-1 filing. It further adds that the move to introduce multiple-class structure may result in a lower or volatile market price for Class A common stock or might have adverse consequences.

The shares in IPO will give the holder one voting rights per share.

Asia market

WeWork’s expansion into new markets will bring down certain metrics, including the average revenue per WeWork membership. This is especially with respect to WeWork’s entry into lower-priced markets and increasing share of these markets like China, Latin America and Southeast Asia in overall contribution margin of the company.

Entry into these markets also contributed to the $19.1 million increase in warehousing, storage and other shipping costs for the company.

Appetite for acquisitions

The company also launched its global real estate platform to acquire and manage real estate called ARK. This will make acquisitions on behalf of the We Company through investment vehicles, joint ventures and acquire real estate investment trusts, operating companies and other large portfolios.

“We participate in ARK through our 80% interest in ARK’s management company and general partner,” said the filing. It further added that “We plan to continue to pursue and complete acquisitions or investments, some of which may be material and may not create the value that we expect.”

The company had earlier acquired the omnichannel platform Meetup and software programming education platform Flatiron School.