The Initial Public Offering (IPO) market received a boost last week after The We Company published its S1 document with the SEC.
The We Company, is the holding company of companies like WeWork, which is one of the most valuable startups in the world today. The recent funding valued the company at more than $40 billion. This is mostly because of the tremendous growth the company has had. In 2010, it had just two locations in 1 city. It finished the second quarter with 528 locations in 111 cities.
WeWork was started in 2010 to disrupt the traditional office ownership model. With its model, the company obtains long-term leases with office owners. It then modifies them to meet the modern needs of startups. It then offers short-term leases to individuals and companies.
This model has seen it become one of the biggest landlords in most cities like London and New York. In the S1, the company said that it was leveraging on the key trends like urbanization, globalization, sharing economy, workplace culture, and an independent workforce to succeed.
The company’s growth was clearly visible from the financial report it published. In 2016, the company had revenue of $436 million, which rose to $1.8 billion in 2018.
However, losses also increased. In the same period, losses rose from $823 million to more than $3.5 billion. In the first six months of the year, the company’s losses increased to $2.9 billion.
As a result of the increased losses, many investors have criticized the company’s valuation. The easiest way this has been done is by comparing the company’s valuation with that of IWG Group, which owns Regus. Regus is the pioneer of office sharing company in the world, with 3,000 locations in 120 countries.
Even with this scale, the company has a valuation of more than $3 billion. This is tinier than the $40 billion+ that WeWork has been valued at. WeWork’s proponents counter the comparison by saying that the company’s growth is much better.
The company also claims that a substantial number of its members were large companies with employees of 500 and above. These companies are usually good for WeWork because they offer more reliable earnings than individuals.
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WeWork IPO: Triumph or Flop?
The company’s IPO comes at an interesting period. This year, some of the biggest IPOs have failed to sustain their private markets valuation. Uber’s stock has declined by 15% while Lyft has declined by 7%.
On the other hand, tech companies that had little fanfare in the past have done relatively well. Companies like Beyond Meat, Zoom Video, and Pinterest have risen by 120%, 35%, and 32% respectively.
WeWork comes with some baggage that could see its share price decline.
First, it comes to the market at a time when the global economy is said to be headed towards a recession. If there is indeed a recession in the horizon, the company could see significant cancellations of the short-term leases it offers.
Second, the company’s founder has received significant criticism for the way he runs the company. A report released by the WSJ indicated that Adam Newman, the company’s CEO owns some of the buildings that his company leases.
Third, a recent report indicated that the CEO had cashed out at least $700 million of his holdings.
Fourth, the company’s big losses are also a red sign.
Finally, some investors are concerned that the tech nature of the company. They have called it just a real estate company, which means that it should be valued as other real estate companies.
Useful external resources about WeWork Ipo
WeWork Analyst Warns IPO Filing a ‘Masterpiece of Obfuscation’ - Bloomberg
What is We!? Understanding the WeWork IPO - Medium