'Elevating Consciousness' With An IPO: The Positives And Negatives For WeWork

The road toward a WeWork initial public offering — officially, for The We Company as of early 2019 — has been a long slog, but with a filing with the Securities and Exchange Commission this week, the question went from "when will it happen?" to "how will it go?"

For a company with a reported valuation of about $47B, the results of an IPO are a remarkably open question.

That valuation itself is hotly debated. Other valuations, based on investments in WeWork made by mutual funds, value the company at $27.B and $19.2B.

WeWork has been busy recently bulking up its tech operations, acquiring software company Euclid early this year and Teem last year, along with other tech startups. 

Yet WeWork's growth in recent years has mostly been based on the arbitrage between what it can charge for its shared office space and what it pays landlords for that space.

By some metrics, WeWork has been a phenomenal success. From a single location in New York only nine years ago, the company now counts more than 650 locations totaling 45M SF in more than 100 cities worldwide. WeWork has about 400,000 members. As of the beginning of this year, 30% of Fortune 500 companies are members of WeWork.

WeWork has thus made itself the dominant figure in the coworking space, pioneering creative spaces for freelancers as well as giant companies, and building on the power of community as a draw for 21st-century workers.

The company thus has considerable potential as the first-mover, early dominator in an area of the economy that is powered by millennials, financial analyst and CrushTheStreet CEO Kenneth Ameduri said.

"More than your average unicorn, WeWork is spearheading a trend —  millennial-generation solutions to a bustling, overcrowded big-city landscape created by their baby-boomer parents," Ameduri said.

WeWork sales doubled in 2017 and again last year, at the forefront of the explosion of the coworking market, which has expanded at an average annual rate of 23% since 2010, according to JLL.

While less than 5% of current U.S. office inventory is controlled by third-party flexible space providers, JLL forecasts shared workspaces will encompass about 30% of the office market by 2030.

To achieve such growth, however, WeWork has plowed through capital, spending more than $2.3B of its cash in 2018 alone, according to a report it gave investors. 

Taking office space and bringing it up to shared-office standards is a costly proposition, it turns out. WeWork lost $1.93B last year, on sales of $1.82B. The company has yet to make a profit. So while it isn't actually a tech company, it is losing money like one. (Uber was in a similar position before its IPO.)

Losses of that magnitude have investors worried, as reflected by the fact that bonds the company has issued are trading subpar. Landlords and real estate brokers are also more skeptical of the coworking giant than they used to be.

"An investment in WeWork requires a measure of speculation garnished with a dash of hope that other investors will embrace a changing of the guard," Ameduri said. "Not that WeWork is entirely anti-traditional. After all, it’s financially backed by the likes of SoftBank, T. Rowe Price, Fidelity and Goldman Sachs."

Japanese investment giant SoftBank, known for its heavy investments in unicorns, has been a major supporter of WeWork as it has grown, pumping in billions directly as well as through its Vision Fund, which it founded in 2016.

In moving toward an IPO now (as opposed to two years ago), WeWork might be looking to take advantage of the difficulty investors are having finding a home for their money, as well as the buzz surrounding other high-profile IPOs lately, especially in the tech sector, such as Lyft, Uber and Slack.

A successful IPO for WeWork would presumably provide fuel for continued growth for The We Company, whose stated goal is to "elevate the world's consciousness" by allowing it to acquire more space and lease it.

Around the time word broke of WeWork's IPO filing, the company released a report about its economic impact in the places it does businesses. To produce the report, WeWork partnered with economic development and public-policy consulting firm HR&A Advisors. 

WeWork and HR&A Advisors say the coworking firm has a positive economic ripple effect for cities, neighborhoods and businesses, especially those renting space from WeWork.

For example, the report says, a company with four employees leasing from WeWork can save $24K, a 35% discount, on average annually compared with standard commercial real estate. To determine that number, HR&A did an analysis of WeWork sales data and CBRE's 2018 Global Prime Office Occupancy Cost report.

New WeWork members are 13% more likely to survive after three years, compared with their peers, the report says. WeWork members report faster growth for their companies, with 54% of members saying that WeWork has accelerated their company's growth. Eighty percent of WeWork members say their productivity has increased since they joined.

"The report authors looked at the survival rates for new businesses who are WeWork members after three years," a spokesperson for WeWork said. "They then compared that for every market in the U.S. where comparable data exists from the Bureau of Labor Statistics, which publishes data on the survivability rate of all firms after three years." 

Are the benefits generated by WeWork true for other kinds of shared office space as well? 

"We’ve only studied the impacts of our space, though our research shows that the rate of people choosing to move closer to WeWork (one in 10) since joining and the rate of people who did not work in the neighborhood before working at a WeWork (70%) are a testament to the size and influence of WeWork’s platform," the spokesperson said.