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WeWork chases high-risk path toward ultimate unicorn IPO

People in a WeWork space
People run a start-up out of a WeWork space in San Francisco in 2016.
(David Butow / For The Times)

The brash founders of WeWork , the global network of shared office spaces now on the cusp of going public, have officially stated their mission: “to elevate the world’s consciousness.”

Never mind making money first.

The signature grow-at-any-cost ethos of the unicorn era was on full display Wednesday as WeWork filed to go public after months of fevered speculation.

Having raised more than $12 billion since its founding nine years ago, and having never turned a dime of profit, WeWork now hopes to sell billions of dollars of stock while simultaneously borrowing billions of dollars more.

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Investors have cause to be leery, especially given the unsettled state of the global economy and financial markets. WeWork is not only chasing bold — and possibly quixotic — ambitions to transform the way the world lives and works. It also is looking to transform when and how young companies can go public.

“WeWork is pushing ahead with an IPO despite an unclear path to profitability that could endanger its valuation,” Bloomberg Intelligence analyst Jeffrey Langbaum said. “We believe the company will be hard-pressed to reverse losses as long as it pursues significant revenue growth.”

Stark losses

The losses, as laid out in the IPO prospectus, were stark: $2.9 billion in the last three years and $690 million in just the first six months of 2019. Still, the company said those losses resulted from continual investments in its growth. Its annual revenue more than doubled to $1.8 billion in 2018, compared with $886 million the previous year.

“We have a history of losses,” it said in its filing with the Securities and Exchange Commission. “We cannot predict whether we will achieve profitability for the foreseeable future.”

Chief Executive Adam Neumann faces persistent questions about WeWork’s propensity to burn cash. The company has described some of its more scrutinized expenses, including a flashy contest series that cost more than $40 million, as a “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. It may not be the best time to go public, as evidenced by the tepid reception to Uber Technologies Inc.’s stock market debut in May.

“These broad market fluctuations may adversely affect the market price of our Class A common stock,” WeWork said in its filing.

Stock classes

In an unconventional move, there will be three classes of common stock at WeWork: Holders of Class A shares will have one vote per share while Class B and Class C holders will have 20 votes per share. That arrangement gives Neumann, who will control a majority of the voting power, outsize sway over picking board members and other matters subject to a shareholder vote.

The office rental company listed an offering size of $1 billion, which is typically a placeholder that will be revised when terms of the share sale are set later.

WeWork had been targeting a share sale of about $3.5 billion in September, people familiar with the matter have said. That would make it the second-biggest initial public offering of the year, topped only by Uber Technologies’ $8.1-billion listing. In parallel with the offering, WeWork has been in talks to raise as much as $6 billion in debt.

JPMorgan Chase & Co. and Goldman Sachs Group Inc. will be the lead underwriters on the offering. Executives from major banks had been courting the company for years.

Debt levels

The New York company said it could one day be profitable if it “stopped investing in our growth.” WeWork said that only 30% of its open locations are “mature” and that 70% of its locations had been open for two years or less. It also has a revenue backlog of $4 billion, eight times its backlog last year, it added.

The full-year net loss attributable to the company widened more than 80% to $1.6 billion, from a loss of $883.9 million in 2017. It lost about $430 million in 2016.

After the figures came out, Fitch Ratings, the most optimistic bond grader about WeWork’s future profitability, lost some of its faith. It downgraded WeWork’s bonds by three steps, to B-, bringing its junk grade into the same tier as S&P Global Ratings’.

SoftBank Group Corp. is WeWork’s largest backer and has valued the business at $47 billion. It has invested about $10.7 billion in WeWork since the start of 2017 and holds a board seat, according to the filing.

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WeWork is by far the most valuable co-working business, though numerous rivals around the world are trying to lure away members.

The company — which changed its name to We Co. in a diversification move this year — has in recent weeks been looking to raise a significant amount of debt. It was seeking to borrow $2 billion through a letter-of-credit facility and $4 billion from a delayed-draw term loan, Bloomberg previously reported.

Banks will have to make good on their commitments only if at least $3 billion is raised in the IPO. It confirmed in the filing that it entered into a commitment letter this month for a credit facility of as much as $6 billion.

The company plans to list shares under the symbol WE, although the exchange wasn’t listed.


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