WeWork, or The We Company as it is now officially known, could launch its circa-$3bn US IPO as early as next week.
That’s despite some brutal commentary since the provider of flexible office space – or “space-as-a-service” if you subscribe to the spin – publicly filed with the SEC for its New York IPO on August 14.
It might even be said the press coverage WeWork and its co-founder Adam Neumann have received as the company prepares to go public is worse than Uber’s ahead of its debut in May. That’s saying something.
Here’s one cutting but hardly unique example of the critiques: WeWTF by Scott Galloway.
Galloway writes with impressive flourish and identifies plenty of red flags for investors contemplating this investment.
To rework the famous porcine analogy, WeWork is a pig caked in lipstick.
WeWork is “disrupting” real estate but instead of tenants, it has members. Instead of rents, it has membership fees.
Unfortunately, instead of profits (or funds from operations) you might associate with a REIT, WeWork has the big losses and poor corporate governance we have now come to expect from Silicon Valley unicorns.
After the disappointments of fellow “unicorns” Uber and Lyft earlier this year, investors are right to be very skeptical of this offering.
That said, the missing piece of information is what valuation WeWork is coming at. That won’t be known until the deal launches (next week or the week after).
The last private round led by Japan’s Softbank valued WeWork at $47bn but as Galloway points out, this investment came with a liquidation preference that means Softbank would get its money back first in the event of a sale or bankruptcy. In other words, it might not be a fair measure of WeWork’s value or any real indication of where underwriters will pitch the IPO.
WeWork has doubled revenues in the past two fiscal years and is on track to do it again this year. Though not necessarily a safe assumption, another doubling of revenues next year would see WeWork generating around $6bn of revenue (in calendar 2020). Put that on Uber Technologies’s current multiple of 4x-5x forward sales and you can get to a little more reasonable $24bn-$30bn valuation.
Reading the S-1 filing, there are clearly many other problems, including the company’s overly complicated corporate structure and related party transactions. These definitely should be discounted in the valuation.
Though it doesn’t really sound like Neumann’s style, a more reasonable valuation starting point would be one way to blunt the choral criticism.