Late last month, flexible office space provider WeWork filed paperwork for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC). At first glance, WeWork’s current $47 billion valuation would make it seem as if investing in the company would be an easy decision when it goes public. However, a closer look at WeWork’s financials might give some prospective investors pause before parting with their money at the flexible office space giant’s IPO.
According to financial website The Motley Fool, WeWork’s revenue continues to increase, but so do its losses. The company’s adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) loss doubled in the last quarter to $220 million, while the company’s net loss, save for an investment gain, increased from $274 million to $631 million. WeWork’s revenue and losses also doubled last year—while revenue reached $1.8 billion, the company’s losses totaled $1.9 billion.
Whether investors decide to take a chance on WeWork may depend on which figures they look at. For example, the company doubled its revenue in 2018 and lost less money during the first quarter of this year than it did last. Those positive figures might give investors some optimism, but that could change to skepticism rather quickly when they realize it was a one-time gain of $367 million that kept WeWork’s Q1 2019 losses low. Otherwise, WeWork’s year-over-year losses have increased to the aforementioned $631 million figure.
WeWork’s leadership will ask hesitant investors to look at the company’s losses as investments instead. During an interview with CNBC earlier this month, WeWork Co-President and Chief Financial Officer (CFO) Artie Minson stated, “We want to emphasize the difference between losing money and investing money. You can lose money or you can invest money. At the end of the quarter, we have these cash-flow generating assets.”
Technically, Minson is right. Anytime WeWork signs a new lease, it creates an asset that can generate cash flow. The company often points to the fact that most of its massive losses come from its rapid expansion—not flaws in its business model. WeWork has said its locations are profitable once they’re leased and the company would currently be profitable if it stopped expanding. While the logic may be correct, it does not change the fact that the company’s books show it’s currently losing large sums of money—an unappealing quality to any investor during an IPO. WeWork critics have also expressed concern that the company’s model is vulnerable to recessions. The company has countered by pointing to the success its locations have had abroad during economic slowdowns.
All of this is not to say WeWork will not be the IPO star some expect it to be, it’s just a warning to investors that they not be completely swayed by the flexible office space provider’s multi-billion dollar valuation. After all, ridesharing companies Uber and Lyft have experienced revenue losses and concerns about that have caused their stock prices to fall. While WeWork is a different business model from those companies, there’s no denying it’s losing its fair share of revenue, too.
Investors Should Tread Carefully As WeWork IPO Looms
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