WeWork reveals huge losses ahead of IPO
WeWork has reported a loss of $900 million for the first half of 2019 in regulatory documents ahead of its planned initial public offering.
The BBC had the news:
The owner of office space company WeWork burned through $900m (£746m) in the first six months of this year, according to figures ahead of its hotly anticipated stock market launch.
Documents filed with regulators reveal The We Company, valued at about $47bn, invested heavily in expansion.
The firm, set to launch on Wall Street next month, also disclosed it doubled revenues to $1.54bn during the period.
WeWork offers serviced office space, often to small, new business ventures.
Critics say it must fulfil long-term contracts with landlords using short-term contracts with its customers, making it vulnerable to downturns, should its custom dry up.
So far it has not turned a profit, but since starting in 2010 it has had terrific growth, spreading to 528 locations in 111 cities.
But a stock market listing would come as markets endure a volatile period due to the UK’s EU exit and the US trade war with China.
If the sale of shares goes ahead, known as an Initial Public Offering or IPO, it will be the biggest such event this year in the US since taxi firms Uber and Lyft floated.
AP’s Alexandra Olson and Cathy Bussewitz reported:
WeWork, 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. The company’s revenue has more than doubled annually over the last few years, but its losses have grown just as quickly.
In 2018, it lost $1.61 billion while bringing in $1.82 billion in revenue. Its latest filing showed the company on track for another year of impressive growth, having generated $1.54 billion in the first half of 2019. But it also lost $689.7 million in that same period.
Investors are looking for a clearer picture of how the venture capital darling plans to chart a path toward profitability, and whether WeWork’s business model can withstand an economic downturn.
WeWork mostly makes money by renting buildings and dividing them into trendy office spaces that it sublets to members. But the company has branched out widely, from acquiring a marketing software company to launching a business-focused school for children and buying a large stake in a wave pool company.
Nick Walko noted for Wccftech that WeWork’s laden with a lot of debt:
By their own calculations even though their spaces are leased; they do not expect to generate a profit from a property until 24-30 months into the lease, these are known as a mature property. The economics of mature properties makes growth beyond 50% annually very difficult because losses will continue to increase until the growth rate falls below 50% with their current model. Part of the reason behind such a low contribution margin for the company comes from GAAP, which requires lease costs to be amortized on a straight-line basis. This means even in the early stages when a lease currently holds little value or generates income generated to the company it is still accounted in the same manner as when the lease is in maturity. This is compounded even further when WeWork uses their scale to negotiate free periods of rent until the property is upgraded or the first few months where no rent is due.