A recent pre-initial public offering document filed with the Securities and Exchange Commission by We Co., formerly known as WeWork, starkly reveals a company that, despite increasing revenue, is burning through cash at an even greater rate. The disclosure document gives detailed financial information about the office subleasing real estate company that may leave many wondering whether its plans for a $3 billion to $4 billion new stock offering will be met with stiff resistance from investors.
A review of the company’s financials, as well as the disclosure of a number of insider, non-arms-lengths dealings between CEO Adam Neumann and the company, should cause investors to view the upcoming new offering with skepticism.
We’s financials paint a worrisome picture.
From 2016 through 2018, the company’s revenue increased four-fold to $1.82 billion. Its annual loss also mounted to $1.61 billion. For the first half of 2019, We’s revenue more than doubled to $1.53 billion, while its loss increased slightly to $689.7 million. The loss would have been greater but for a one-time extraordinary gain of $486.2 million.
Nine years after it leased its first office building, We has yet to figure out how to turn a profit from offering tenants cozy barn-wood interiors, on-site craft beer, yoga mats and dog treats to justify the nice markups on the space it subleases.
We reported over $1.9 billion in losses — a 103% increase over 2017 — on $1.8 billion in revenue last year, which amounts to nearly 34% below the company’s own revenue estimates. It is interesting to note that competitor IWG (LSE:IWG), formerly known as Regus, by comparison, posted $140 million in net profits on revenue of $3.3 billion.
The trouble for We is that as its revenue grows, so does its losses at nearly the same rate. This direct correlation is not a promising sign. The company anticipates revenue of approximately $3 billion this year along with concomitant losses for the same amount. This would mean the company’s total accumulated losses for 2018 through 2019 would be close to $6 billion.
Then there is the question of We’s sky-high valuation. In this regard, the company seems to be on the same path as money-loser tech IPO companies Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), both of which had to substantially trim their lofty and unrealistic pre-IPO valuations when they priced their new offerings. Even though SoftBank bought out some of We’s early investors a few months ago, based on a $23 billion valuation, the company is currently using a pre-IPO valuation of $47 billion based on the sales proceeds from various earlier private placements.
For purposes of assessing whether $47 billion is a reasonable valuation, SoftBank attempted to structure a deal last year to buy stock from existing shareholders for $10 billion. The deal crumbled after some of SoftBank’s investors, including Saudi Arabia’s Sovereign Wealth fund, balked over concerns