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- Analysts and potential investors have had some big questions about WeWork. They now have some answers.
- In its public offering paperwork that it released last week, WeWork addressed many of those questions.
- One of the sections in the document was entitled "Expected Resilience in a Downturn."
- But the company’s answers didn’t necessarily provide a lot of reassurance to its skeptics; many analysts instead found reasons in WeWork’s IPO paperwork to be even more skeptical of the company than before.
- "Their list of risks [in the document] for the company going forward were kind of a greatest hits of what everyone has been thinking about it," according to Walter Johnston, who focuses on the real-estate market as a vice president of credit ratings at the research firm Morningstar.
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Analysts and potential investors have had some big questions about WeWork. They now have some answers.
The coworking giant has faced scrutiny over everything from its basic business model, to its valuation, to its CEO Adam Neumann. In its public offering paperwork that it released last week, it addressed many of those questions. The filing even attempted to answer one of the biggest head-on — one of the sections in the document was entitled "Expected Resilience in a Downturn."
But the company’s answers didn’t necessarily provide a lot of reassurance to its skeptics. Although the filing attempted to play down or paper over the weaknesses in WeWork’s business model and dubiousness of its $47 billion valuation, many analysts instead found reasons in WeWork’s IPO paperwork to be even more skeptical of the company than before.
Read this: Here are the 5 biggest questions facing WeWork as it prepares for its IPO
There had been plenty of "rumors and whispers" prior to the paperwork that the company was losing copious amounts of money and its growth was unsustainable, said Walter Johnston, who focuses on the real-estate market as a vice president of credit ratings at the research firm Morningstar. The filing basically confirmed those suspicions, he said.
"Their list of risks [in the document] for the company going forward were kind of a greatest hits of what everyone has been thinking about it," Johnston said.
Here’s how WeWork answered some of the biggest questions about its business and offering — and what analysts made of its answers:
Just what is WeWork?
Michael Kovac/Getty Images for WeWork
Prior to the release of WeWork’s IPO filing, many wondered whether the company was more like a tech firm or a real estate one. The difference isn’t just semantic; investors tend to pay a much steeper premium for tech companies than for real-estate firms. They also tend to be more tolerant of losses for tech companies, especially if they’re growing quickly and can promise a big payoff down the road.
WeWork wants to be classified as a tech company.
WeWork
As you might expect, WeWork attempted to pitch itself as being square in the middle of the tech industry. It mentioned the word "technology" 93 times in its IPO document, including in the very first paragraph of the very first real page of the document, right after the table of contents.
"We provide our members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure," it said.
But that wasn’t all. Latching on to one of the industry’s buzzwords, WeWork described its service as a "platform," mentioning that word 170 times. Seemingly riffing off another industry catchphrase — software as a service, used to describe services offered on a subscription basis over the web or through apps — WeWork described its business as "space-as-a-service."
"We offer a space-as-a-service model that we operationalize by using a global-local playbook powered by technology," it said in the part of its IPO filing where it describes its business.
WeWork isn’t a staid old real-estate company, it assured potential investors. Instead it’s using it’s using its technological savvy to revamp the workplace.
"We are reinventing the way people work and transforming the way individuals and organizations relate to the workplace," it said.
"We imagined," it continued, "the future of work: dynamic, well-designed workspaces for less, a suite of value-added products and services, all powered by data, analytics and deeply integrated technology that helped our members unlock creativity and productivity."
Analysts think that’s ridiculous.
REUTERS/Joshua Roberts
Regardless of what WeWork said in its IPO paperwork, its numbers make clear that it’s not a tech company, analysts said. All you have have to do is look in the document at where it’s spending its money, said Robert Siegel, a lecturer in management at Stanford Graduate School of Business.
In the first six months of this year, it spent $1.2 billion on "location operating expenses," which includes such things as the rent it pays its landlords, its utility bills at the properties it rents out to its clients, and its costs for repairing and maintaining those properties. Those expenses consumed 80% of its revenue in the period, according to its IPO filing.
By contrast, the company spent $370 million, or 24% of its revenue, on "growth and new market development" costs. That’s a grab-bag term the company uses to describe a wide range of expenses, from finding, designing, and developing new office spaces to technology research and development.
Even if you assume that half of the money WeWork is spending on growth is going toward technology, it would represent a small fraction of the amount it devotes to its real-estate costs, said Siegel.
"I don’t think there’s any way you can look at this company today and say it’s a tech company," he said.
WeWork does offer an app that helps tenants report problems, book conference rooms, and find and attend events. But lots of companies theses days — including in the real estate sector — offer apps or rely heavily on technology, said Daniel Morgan, a longtime tech investor and a senior portfolio manager at Synovus Trust.
Sure, it has lots of tech companies as tenants. And its revenue growth rate (100% in the last six months), soaring losses ($690 million in the same period), and heady private valuation (nearly 16 times this year’s expected sales), resemble that of a tech company.
But it doesn’t depend on technology for its revenue, and its technology doesn’t distinguish or protect it from competitors.
WeWork’s effort to try to pitch itself as a tech company is akin to an illusionist’s trick or like the idea that if you repeat something enough times, people will believe it, said Scott Galloway, a professor of marketing at New York University and former startup founder.
"It feels like there’s a total lack of respect for the intelligence of investors," Galloway said.
See the rest of the story at Business Insider
See Also:
- Why WeWork’s $47 billion private valuation could be a key stumbling block for its IPO — and might even derail it completely
- 2 big numbers — $4 billion and $47 billion — sum up WeWork’s business model and the risky reason it could collapse in a recession
- How WeWork paid Adam Neumann $5.9 million to use the name ‘We’
Source: Business Insider – twolverton@businessinsider.com (Troy Wolverton)