WeWork‘s parent company The We Company has filed on behalf of its shared workspace brand to go public under the ticker symbol WE, but hasn’t yet chosen which exchange to list it on. Nevertheless, the $1 billion raise has both Wall Street and tech reporters excited, if for different reasons.
Wall Street hopes the “space as a service” business can re-ignite an IPO market disappointed by the performance of Uber (NYSE:UBER), which still sells for less than its initial $42 trade. But, many tech reporters argue that WeWork isn’t a tech company at all.
WeWork’s S-1 describes a way to put workers into high-class space for less than half the cost of a standard lease. The idea is to aggregate office demand from large employers. It bases a $47 billion valuation on losses of $690 million over the last six months, evidence of just what a ground-floor opportunity this is.
The Magic of Leverage
The most interesting chart in the S-1 compares where WeWork is today against where it hopes to be 9-18 months from now. The money is currently in finding space and building it out, but the money will soon come from selling monthly memberships to fill the space. It claims to have 528 co-working spaces in 111 cities across 29 countries. Half of WeWork’s 527,000 members reside outside of the United States.
Its rival IWG (OTCMKTS:IWG), formerly known as Regus, rents small offices in suburban locations. WeWork on the other hand is splashing its name all over downtown office towers. IWG made a profit last year on revenue of $3.4 billion and has a market cap of just under $3.7 billion. Last year, WeWork lost $1.9 billion on revenue of $1.8 billion and claims a $47 billion market cap.
How is this possible? Some of it is due to its backers, like Benchmark Capital, JPMorgan Chase (NYSE:JPM), and the SoftBank (OTCMKTS:SFTBY) Vision Fund. Part of it is due to global ambitions, its use of expensive real estate and its seeking of high-profile corporate lessors. Part of it is just hype.
Bloomberg Opinion’s Shira Ovide, who writes about technology, tweeted that WeWork’s IPO filing is “… THE MOST BANANAS THING I HAVE EVER READ.” She also writes that WeWork is “the most magical unicorn” to ever come to market.
WeWork vs. Uber
Unlike Uber, which developed a scaled market before coming public, The We Company is coming public ahead of its key growth period. In addition to its small equity raise, the company is also pursuing an asset-backed loan of $6 billion. Should the stock hold its IPO price — and the limited float gives it a good chance of that — its backers can mark nearly 150 million pre-IPO shares to market and clear enormous paper profits.
WeWork is also playing the dual-share game to the hilt. IPO investors will get shares with one vote each. Class B and Class C shareholders, like founder Adam Neumann, get 20 votes per share.
The Bottom Line on WeWork Stock
Uber is an example of a 2010s’ unicorn. It went public after creating its market as a scaled, if money-losing company. WeWork is more like a 1990s’ Internet IPO, with more zeroes attached to it. Public investors are getting in earlier in the business’ growth process, at least according to the prospectus.
But the critics are right. WeWork is not a tech company. A chart in its S-1 shows Facebook (NASDAQ:FB), Salesforce (NYSE:CRM), and Cisco Systems (NASDAQ:CSCO) using We services, space and products to cut the costs of growth.
But what they’re doing is renting contingent space, only some of which they’ll use. Maybe The We Company is just a corporate real estate version of LA Fitness.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in CSCO and JPM.