IPO Filing Reveals Costs of WeWork’s Growth Spree

Image courtesy of The We Co.

The world’s largest flexible office firm saw revenue more than double year-on-year even as the company lost more than $900 million in the first six months of 2019, WeWork’s parent firm revealed in its IPO prospectus released today.

The We Co., which reportedly aims to go public as early as next month, plans to list under the ticker “WE.” JP Morgan Chase and Goldman Sachs are the main underwriters for the offering. The planned stock market debut comes amid a flurry of major tech and sharing-economy IPOs in 2019, including those of Uber, Lyft and Pinterest, with Airbnb expected to follow next year.

The prospectus reports that We Co.’s revenue reached $1.54 billion in the six months ending June 30, up from $763.8 million in the previous year. The company plowed $2.36 billion in cash into investing activities during the same period. The firm’s net loss came to $905 million in the first six months of the year—compared to $723 million a year earlier—with roughly $690 million of the losses attributed to the WeWork business.

Long-term rent bill comes to $18B

The 9-year-old startup now operates more than 528 locations in 111 cities around the world, with a footprint of more than 24 million square feet in the U.S. alone. WeWork had 527,000 memberships as of June 30, growing nearly 97 percent year-on-year. Enterprise users with more than 500 employees are the fastest-growing member category, making up more than 40 percent of the company’s membership base.

WeWork’s costs are surging in tandem with its aggressive growth. Long-term lease obligations totaled $17.9 billion as of June, according to the filing. Despite this, the Manhattan-based brand harbors galactic ambitions. WeWork expects to launch in up to 169 additional cities and sees a total addressable market opportunity of $945 billion in its existing cities and $1.6 trillion for all 280 target cities.

Foreign expansion is a key part of the company’s strategy, with operations outside the U.S. comprising 44 percent of revenue in the first six months of 2019. Japan’s SoftBank Group and SoftBank Vision Fund has invested or committed roughly $10.65 billion into the firm, the prospectus notes.

Separately, Fitch Ratings has downgraded The We Co.’s long-term issuer default rating (IDR) to “B” from “BB-”. “WeWork has underperformed relative to Fitch’s expectations at the time of the initial rating particularly as it relates to progress towards a normalized margin, and by extension, cash flow profile and credit protection metrics, which materially increase its credit risk over the rating horizon,” the credit rating agency said in a statement released today.

The ratings firm added that in 2018, “WeWork exceeded our combined overhead and pre-opening expense expectation by more than 60%.”