Thursday, 14 November, 2019

WeWork to test IPO investor appetite with widening losses

Adam Neumann co-founder and chief executive officer of We Work
Credit
VCG Adam Neumann co-founder and chief executive officer of We Work Credit VCG
Russell Knight | 17 August, 2019, 09:40

In its plans to go public, WeWork outlined a number of risks.

Never mind making money first.

Comment WeWork, the office rental upstart that poses as some kind of tech startup incubation facility, has submitted the paperwork for its stock-market debut in the United States - and its filings warn the biz "may never be profitable".

Early this year, WeWork unveiled its new corporate brand: We Co.

WeWork, whose current investors include Japan's SoftBank, did not disclose how much it is looking to raise in the IPO and what valuation it will aim for.

'Wework vs its primary competitor, IWG: - Half the revenue; Losing money; More than 10x the valuation.

"It is an interesting parallel with the dotcom companies", said Greg Kyle, director at the Bates Group who helped publicize the staggering losses being run-up by Internet start-ups during the late 1990s dotcom craze. At the same time the company lost close to $700m in the first half of 2019, $1.6bn in 2018, nearly $900m in 2017, more than $400m in 2016, the filing shows.

In its Securities and Exchange Commission (SEC) filing, the New York-based company said it will list under the market ticker symbol "WE".

And many investors also once fretted about the big losses at Amazon.com and Netflix when they went public, and both companies have turned out to be good stock investments. The company has described some of its more scrutinized expenses, like a flashy contest series that cost more than $40 million, as "critical means through which we express our key values".

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Another potential hurdle: unpredictable swings in the stock market as investors fret over trade tensions, the global economy, Britain's exit from the European Union and other issues. That would make it the second largest U.S. IPO this year, behind Uber (NYSE: UBER).

"These broad market fluctuations may adversely affect the market price of our Class A common stock", WeWork said in its filing. Yet in early 2019 Neumann took out a $362 million loan from the We Company at 2.89%, and paid it back in August by surrendering an equivalent amount of shares.

Citing the company's uncertain path toward profitability, Fitch Ratings downgraded WeWork's bonds three levels to a B- on Wednesday.

WeWork had been targeting a share sale of about $3.5 billion in September, people familiar with the matter have said.

This year is the year of listing publicly it seems as Uber, Lyft and now WeWork are readying for an Initial Public Offering (IPO). In parallel with the offering, WeWork has been in talks to raise as much as $6 billion in debt.

Though negotiations are ongoing and the terms are not finalized, it is highly likely JPMorgan Chase and Goldman Sachs will underwrite WeWork's IPO.

Barry Oxford, a real estate analyst at DA Davidson & Co, said We Company may not post a US$486 million non-cash addback later this year. But that may give investors pause. In India, WeWork ended past year with 35,000 desks across 17 locations. It says the pair must give $1 billion in cash and equity to charitable causes in the next 10 years or the power of their "high-vote" shares - which carry 20 voting rights each, compared with one vote per normal share - will halve, to 10 votes apiece. The company also reported that it had 527,000 members as of June 30, an increase of more than 90% from the year before.

In 2016, Neumann borrowed $7 million from WeWork at a generous annual interest rate of 0.64%.

Meanwhile, WeWork's description of Adam Neumann, its co-founder and chief executive, stops short of claiming he can walk on water, but only just: "Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator, while thriving as a community and culture creator", it says.

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