WeWork, the coworking space startup, just filed paperwork detailing its financials with the Securities and Exchange Commission for an initial public offering and boy, oh boy, does it throw away a lot of money.
In case you’ve been unscathed by the gig economy, WeWork basically operates on the idea of providing flexible workspaces to freelancers, remote workers, entrepreneurs, and small businesses. Simply put, it’s a landlord who offers Kombucha on tap as an example of innovation. The startup is also another unicorn with a bloated $47 billion valuation after SoftBank threw more money at the company in January. In April, it rebranded as the We Company and filed its intent to go public. That said, today’s filing shed some light on WeWork’s financials and while it does boast lots of revenue, the losses are equally staggering.
In 2016, the company reported a $429 million loss on $436 million of revenue—a pattern that’s just deepened in the following years. It recorded an $883 million loss on $886 million revenue in 2017, and in 2018 lost $1.6 billion of its $1.8 billion revenue. In the first six months of 2019, it lost $689 million of its $1.5 billion. Altogether that’s something like $4 billion in losses. My dudes, where is all this money going? How many kombucha taps does a coworking space actually need?
There’s definitely some creative accounting at work with regard to WeWork’s financials. For instance, WeWork likes to use the dubious metric “community adjusted EBIDTA” which is basically a fancy made-up term to say it subtracts interest, taxes, deprecation and amortization, marketing expenses, general and administrative costs, development, and design costs from its losses. According to an Axios report, it also includes tenant feeds, rent expenses, staffing, facilities management. This is funky math that’s sort of like waving a hand in front of your face to say the startup isn’t losing money—it’s investing in the future. Potato, poh-tah-to.
Aside from billions in losses, the S-1 filing also raises new questions about CEO Adam Neumann and the We Company. First off, it lists two interviews Neumann gave to Business Insider and Axios in May as potentially violating the quiet period before an IPO. We reached out to WeWork about the issue, and a spokesperson politely declined the opportunity to comment.
More troubling is that the related parties section of the filing says Neumann and other executives apparently borrowed millions in loans from WeWork itself. (It’s all fine though. In a bizarre cookie fortune poem, page two of the filing dedicates the whole prospectus to the “energy of we,” which echoes bullshit Neumann fed Forbes in 2017 when he said, “Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue.”)
Added to that, Neumann recently cashed out upwards of $700 million ahead of the IPO. That’s weird because usually, founders wait until after the IPO to make bank. He also purportedly used his own personal wealth to buy properties, which he then leased to WeWork for several millions of dollars in rent. Neumann also reorganized the IPO structure to give a tax advantage to WeWork’s founders and other insiders over those who buy into the IPO.
None of this quite adds up. For instance, IWG owns a number of coworking spaces that are less sexy versions of WeWork and it’s valued at about $4 billion. That’s a lot, but it’s also a lot less than the $47 billion WeWork is supposedly worth. According to the Wall Street Journal, IWG also had twice as much revenue as WeWork in 2018.
WeWork’s ridiculous valuation was lambasted by Scott Galloway, a marketing professor at NYU Stern School of Business. “WeWork makes absolutely no sense. That is the perfect example of kind of this frothy market of consensual hallucination between the company and its investors,” Galloway told Business Insider.
WeWork’s just the latest money-losing, tech-adjacent venture to go public and disappoint. In May, Uber had the worst-performing IPO in U.S. stock market history. Lyft’s IPO was also bad. It would, however, appear that WeWork is at least somewhat aware that it’s cash-hungry and unprofitable venture might spook investors. That’s why its reportedly looking to drum up $4 billion in debt financing before its IPO. How will this all shake out when WeWork goes public? Who knows, but I’ll be sipping on some kombucha when it does.