WeWork’s parent company gave investors the most detailed look yet at its finances Wednesday, revealing breakneck growth on the back of massive losses as the office-sharing company prepares for a highly anticipated debut on the stock market.
Founded as a co-working space in Manhattan in 2010, WeWork now has 527,000 members in 111 cities worldwide, according to the regulatory filing by parent firm, The We Company. That’s nearly double the 268,000 members it had in the prior-year period.
But the company’s losses have grown nearly as quickly as its revenue, roughly doubling annually over the last few years. WeWork lost $1.61 billion in 2018, up from $884 million in 2017 and $429.7 million in 2016.
WeWork operates spaces in Durham and Charlotte with more space coming online in Raleigh.
WeWork’s NC spree continues: New spaces in Durham, Raleigh and Charlotte
WeWork Durham.ID at 300 Morris Streeis the newest. The 80,000-square-foot office occupies three floors in the newly constructed seven-story Morris building, boasting sweeping views of downtown Durham and the iconic American Tobacco tower. It’s one of two buildings — the other is leased by Duke Clinical Research Institute — which is set to make up Durham’s new Innovation District.
That same week, WeWork also launched its Raleigh office – WeWork One Glenwood at 1 Glenwood Ave.
And if that wasn’t enough, there’s a third space coming to Charlotte in August.
Mounting losses
WeWork had a net loss of $689.7 million on revenue of $1.54 billion for the six months ended in June. That compares with a net loss of $628.1 million on revenue of $763.8 million in the prior-year period.
Total expenses, meanwhile, grew from $1.44 billion in the first six months of 2018 to $2.9 billion in same period this year.
The company has rapidly grown to become among the biggest corporate landlords in some cities, while casting itself as a transformational force changing the way people work and live. WeWork said it expects to expand aggressively in its existing cities and to launch in up to 169 additional cities. It warned that because it has been spending so heavily to grow its business, the company may be unable to achieve profitability.
Investors are looking for a clearer picture of how the venture capital darling plans to chart a path toward profitability, and whether its business model can withstand an economic downturn.
WeWork Labs, the company’s for-pay innovation platform for startups, now in Durham
The company, whose initial public offering is expected in September, will be the latest in a string of large money-losing enterprises to test its luck on the stock market this year, following Uber and Lyft.
At $47 billion, WeWork is one of the most valuable privately held companies in the world. It mostly makes money by renting buildings and dividing them into trendy office spaces that rents out to members. But the company has branched out widely, from acquiring a sales platform to launching a business-focused school for children and buying a large stake in a wave pool company.
“One of the things the company will have to do is to really position itself as more than just a landlord,” said Alejandro Ortiz, principal analyst at SharePost.
WeWork began by renting office space to freelancers and startups, but a growing part of its customer base are major corporations, which are betting on the model as an efficient way to enter new markets and bring employees closer to clients.
About 40% of WeWork memberships came from companies with 500 or more employees in the second quarter of 2019, up from 30% at the same time last year. Those so-called “enterprise memberships” are valuable to WeWork because they typically sign up for longer-term commitments.
Companies including UBS have contracted WeWork to redesign its existing offices spaces, giving them a hipper vibe with huge multi-functional spaces and wellness amenities. That business could ease WeWork’s reliance on growing its costly real estate footprint.
Despite $1.9B in losses funding expansion, WeWork confidentially files for IPO
But the company has at times raised questions about its direction with investments such as the children’s school.
“What are they actually trying to do there?” Ortiz said. “In short, I don’t know what those business lines do for the company, but I do know that building out things like that is very expensive.”
In its plans to go public, WeWork outlined a number of risks, some of them having to do with its unconventional CEO and co-founder, Adam Neumann, who stirred controversy with his investments in real estate entities that lease to WeWork.
Neumann has no employment contract with his company and if he ends up leaving his post as CEO, it could hurt the business because he has been critical to setting the company’s vision. Neumann did not earn a salary from WeWork in 2018 and earned only $1 in 2017, according to the filing.
WeWork has also entered into leases with landlord entities in which Neumann has or had significant ownership stakes, which could lead to potential conflicts of interest with shareholders, the company said.
The company further warned investors that Neumann gave media interviews earlier this year that potentially violated Securities and Exchange Commission protocols about respecting a “quiet period” ahead of IPOs. WeWork had filed confidentially for an IPO in December 2018.
WeWork indicated that it’s organizing its shares in such a way that Neumann will control a majority of the voting power, giving him the ability to dictate the outcome of major decisions.
What will HQ Raleigh do when WeWork moves into town? Hint: It’s not nothing
Benchmark, J.P Morgan and Softbank also were listed as major stockholders that own more than 5% of the company, along with WE Holdings, which is also controlled by Neumann.
Investors are often wary of companies that place so much power in the hands of one executive or founder. But defenders of the practice say it can help the company stick its long-term vision and shield the company from the short-term goals of Wall Street.
An Israeli immigrant who partly grew up on a kibbutz, Neumann’s efforts to position WeWork as a trend-setter for corporate sustainability and communality has included banning meat at employee events and organizing annual summer camps for its employees and clients.
In its filing, WeWork said Neumann and his wife Rebekah agreed to contribute at least $1 billion to charity by the 10-year anniversary of the IPO, and if that contribution is not met, Neumann’s shares would lose some of their voting power.
