GWO SPECIAL REPORT on WeWork IPO
What’s The Story on WeWork?
There’s been a lot of conversation about the coming (?) IPO of WEWORK, and there are a lot of issues to drill down on to find out what it’s all about.
WeWork is an American real estate company that provides shared workspaces for technology startup subculture communities, and services for entrepreneurs, freelancers, startups, small businesses and large enterprises. Founded in 2010, it is headquartered in New York City. As of 2018, WeWork manages 46.63 mill. sq. ft.
Seems pretty clear cut as to what they do, and frankly, they have proven that they can be successful at doing it, just not at a profit. The company loses roughly $ .50 out of every $1.00 of revenues.
Earlier this week real estate magnate Sam Zell was on CNBC talking about the company and he had several things to find fault with. They ranged from the issue of taking out long-term leases with landlords and using them to rent out space on a short term basis, to the fact that there has never been a company in this segment that did not go bankrupt, ever. He also quoted the same number mentioned above about how much money the company is losing on every $1.00 in revenues.
He also mentioned one area that has also been discussed in many interviews, corporate governance. The dual voting issue of 20:1 is very troubling to Mr. Zell. The fact that he tried to do a “non-arms-length” transaction to sell the company the name “WeWork” for $5.9 Million (since walked back) shows either a lack of understanding of governance or a disregard for it.
Softbank is a major investor in the deal with roughly $10Billion invested at prices between valuations of $20B and $47B. Currently the talk on pricing is well below the top end and possibly below the low end. It has been reported that many investors (the real ones, not you and me) are not interested even in that low end. The company clearly has needs with its current burn rate, and it is questionable as to whether Softbank is willing to make that investment. This week an analyst from Bernstein said that Softbank will have to “write down” their investment if a deal is done below $25Billion. Not at all a pleasant scenario.
SO, IS WEWORK A BAD DEAL AS AN IPO?
Not necessarily. While Softbank and other investors won’t be happy with a deal with a lower valuation, it’s also the business that they are in. Every deal is not a home run on the IPO day, as clearly seen in UBER. Slack (WORK) was a pretty good deal that had a great debut, falling below its “reference” price after a poor earnings report. LYFT worked, until it didn’t, although it still fared better than UBER.
So, why be interested in WeWork? Well, the company really needs to get their hands on some more cash. If the bottom line is that it hasn’t lived up to its original private investors, too bad. I would doubt that they would stand in the way of a lower valuation when they can get the public in to help provide what is needed to make this one work.
So, caveat emptor! But if this deal does get priced to better reflect the risks, it can certainly make sense to be involved…
Stay tuned…
CAM