Unfortunately, investors are not so patient with such a blueprint but a shy company.
The prospectus was finally released, and WeWork’s holding company, The We Company, is expected to be listed as soon as September.
After Lyft and Uber, the US stock market will usher in a company that has never been profitable but has a high valuation. With a valuation of 47 billion US dollars, WeWork is enough to create the second largest IPO of US stocks after Uber this year.
WeWork’s valuation has been accompanied by questioning growth. Last April, WeWork’s valuation was still 20 billion. The doubts were already heard, but the price doubled after one year. There is a lot of credit for soft silver.
Since its inception in 2011, WeWork has raised $12 billion in funding, most of which comes from Softbank. Before 2019, Softbank invested a total of $8 billion in WeWork, including $3 billion invested in November last year. In December last year, Softbank also planned to continue to invest $16 billion in WeWork, but in January this year, the amount of funds was reduced to nearly $2 billion.
The prospectus shows that in the first half of this year, WeWork earned $1.5 billion and a net loss of $900 million. In 2017, WeWork earned $886 million, with a net loss of $933 million; in 2018, revenue was $1.82 billion, an increase of 105.4% year-on-year, and a net loss of $1.9 billion, an increase of 103.6% year-on-year.
WeWork’s hard-to-press costs are determined by its heavier business model: taking the property from the real estate agent, signing a long-term lease, spending money on it, and then renting out the station. As the scale expands, the cost of taking buildings and retrofitting will also increase. The prospectus shows that as of the beginning of this year, Wework’s long-term lease contract amounted to $14 billion, and the company’s future minimum lease payment obligation was $47.2 billion.
Now, Weaver has only 2.473 billion cash assets on its account and still relies heavily on financing. According to Reuters, WeWork plans to raise $3 billion to $4 billion through IPO. Prior to this, it had received a $6 billion line of credit from financial institutions such as JPMorgan Chase and Goldman Sachs. If you get a $10 billion, you can make WeWork’s debt pressure temporarily relieved.
But it’s doubtful whether you can raise so much money. In May last year, due to excessive investment, long-term negative cash flow and mismatch of lease contracts, S&P and Fitch Ratings gave WeWork’s bond “junk” rating, which considered its ability to withstand economic cycle risks weak. In addition, the two companies with similar styles this year, Uber and Lyft’s IPO are also less than ideal .
May, UbEr is listed at a valuation of $82 billion, far less than the $120 billion expected by Wall Street bankers in September last year. Lyft, which went public earlier than it, fell nearly 12% on the second day of the listing, fell below the issue price, and has not yet risen back to the issue price of $72.
Investors are not so patient with companies that are big but blue-eyed.
According to the approximately $3.8 billion in earnings from the investment Uber mentioned in the Softbank earnings report, Softbank’s return on investment is only 3.6 times. When Amazon and eBay went public 20 years ago, the average yield to investors was 32 and 68 times, respectively.
According to the prospectus, Softbank is the largest shareholder in the company except for the founder, but CEO Adam Neumann is still firmly in control of the entire company and will receive more than Half of the voting rights.
Adam Neumann is another uncertainty in the minds of WeWork’s pre-IPO investors. He rented his property to WeWork and earned millions of dollars. In addition, before the IPO, Neumann has cashed in advance of 700 million US dollars. His wife, Rebekah Paltrow Neuman, was appointed as one of the company’s successors. Now, she is already the CEO of WeWork’s related business WeGrow, and this family business style does not appeal to Wall Street.
In May of this year, WeWork’s first-quarter earnings conference call, Adam Neumann said: “We spend $1 billion to add 236,000 desks, and the marginal contribution rate can reach 27%. So the future In 15 years, $1 billion will bring in a marginal benefit of $24.7 billion. We are building products that generate cash flow, rather than offering higher salaries and discounts in price wars.”