WeWork Shows Widening Losses as It Files for IPO

Shared-workspace provider was co-founded by Israeli Adam Neumann nine years ago and has a $47 billion valuation

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The WeWork logo is displayed outside a co-working space in New York City, New York U.S., January 8, 2019.
The WeWork logo is displayed outside a co-working space in New York City, New York U.S., January 8, 2019.Credit: \ Brendan McDermid/ REUTERS

WeWork, owner of The We Company, filed with regulators Wednesday for an initial public offering and published detailed financial statements for the first time that showed it lost almost $700 million in the first half of 2019 while doubling revenue.

The preliminary filing with the U.S. Securities and Exchange Commission takes it a step closer to a planned listing next month. It comes as stock markets are in turmoil due to a prolonged U.S.-China trade war.

This year has been the biggest for U.S. IPOs since 2014, with Uber and Lyft making their much-awaited market debut. The ride-hailing rivals, however, have struggled since listing, with investors wary of the pair’s billions of dollars in losses and the absence of a time table to reach profitability.

The U.S.-based WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. Now CEO, Nueumann is the personality most identified with the company. Born in Israel, he spent four years as a young child in the U.S. before returning to live on a kibbutz, to whose communal lifestyle he credits with helping inspire the shared work space idea.

“We are making a capitalist kibbutz,” he told TheMarker in a 2017 interview.

Neumann, who lives in New York with his wife and five children, was No. 11 on TheMarker’s 2019 ranking of the wealthiest Israelis, with a net worth of $4 billion.

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With its steep losses, WeWork faces some headwinds. Its business model, based on short-term revenue agreements from the users of its shared work centers and long-term loan liabilities, has met with investor skepticism. Still, revenue has surged as the company shakes up office rentals by offering startups and entrepreneurs short-term contracts in lieu of traditional long-term leases. It also generates more revenue per square foot than landlords by squeezing more people into a space.

The company was valued in January at $47 billion in a private funding round.

The IPO filing provides the most comprehensive financial picture yet of the company, which had previously reported it lost nearly $2 billion in 2018, as it spends heavily to grow its business.

Among the disclosures in the filing, WeWork reported a net loss attributable to the company of $689.7 million in the six months ended June 30, compared to a loss of $628.1 million a year earlier. Revenue more than doubled to $1.54 billion in the period.

WeWork did not give a time frame for becoming profitable as it continues to invest in expanding operations.

“Average revenue per WeWork membership has declined, and we expect it to continue to decline, as we expand internationally into lower-priced markets,” the company said in the regulatory filing.

With 528 locations in 111 cities in 29 countries, WeWork said it expected to “expand aggressively in our existing cities as well as launch in up to 169 additional cities.”

Flexible office providers have dominated leasing in major gateway cities, most notably London, New York and San Francisco, a sign of growing demand by companies and not just the startups and entrepreneurs that put co-working on the map.

While WeWork is the flag bearer, several operating models exist. The industry, which JLL estimates will account for 30% of leasing in a decade, is likely to end up like hotels with various services and customer niches. 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.

This will come in an amended IPO filing, which would precede a 10-day IPO roadshow to meet with potential investors.