WeWork Cos. said Wednesday that sales growth accelerated and losses slightly narrowed in the first quarter. The New York company, one of the country’s most valuable startups, is preparing to test public investors’ appetite for another tech-infused, cash-burning business after the disappointing debut of Uber Technologies Inc.
The company, which leases office buildings, renovates them and rents space to workers, reduced its loss to $264 million last quarter, from $274 million a year earlier. Revenue more than doubled to $728 million in the same period, as did membership. The losses were driven by development costs, which almost tripled to $160 million, and marketing expenses, which more than doubled from a year ago to $141 million.
WeWork, which recently rebranded itself as We Co., is privately held but has agreed to report select financial information since selling bonds rated as junk a year ago. In the new report, WeWork redefined one of the metrics it uses to show stability. Previously, it defined a category of its largest corporate customers as those with a staff of at least 1,000. These companies are seen as more likely to keep paying when an economic downturn hits, compared to freelancers or startups. WeWork expanded the group to include companies with 500 or more employees that pay for access to a WeWork space, accounting for 40% of members.
Analysts say 2019 is on track to be the busiest year for initial public offerings in at least a decade. Several recent offerings have performed well, and more are on the way. WeWork would probably be the second-biggest if it goes public this year as expected. But the two largest so far, Uber and Lyft Inc., quickly plunged below their IPO prices. They share one thing in common with WeWork: They each lose more than $1 billion a year. WeWork lost $1.9 billion last year on $1.8 billion in sales.
Adam Neumann, the co-founder and chief executive officer of WeWork, is hoping to bring in more investors to help keep growth strong. It’s starting a new real estate investment fund, called ARK, to buy buildings where WeWork will be a major tenant. It will begin with almost $3 billion, including $1 billion from Canadian real estate investor Ivanhoé Cambridge Inc.
As detailed in a Bloomberg Businessweek cover story on Wednesday, WeWork controls most of ARK, which means it also gets to pocket some of the value that the company believes it adds to a building when it moves in.
The company said Wednesday that it expects to generate more than $3 billion in revenue this year. However, the average revenue for each of its roughly 466,000 members has been steadily dropping. Two years ago, WeWork generated $7,169 for each person who rents space in its buildings per year; this quarter, that figure is $6,340.
WeWork said the decline is the result of opening more buildings abroad, where customers pay less for coworking services. Almost half of revenue comes from outside the U.S., up from 38% a year ago.