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Confidentially, this company applied for its initial offer of shares; investors fear their risky business model
WeWork's parent company, The We Company, the world's largest coworking company, confidentially applied for an initial public offering of shares on the New York Stock Exchange. This company, which has a business model that has polarized analysts, will now try to recover some of the great investment that has been destined to grow to the size it has today.
WeWork is a US company that provides shared workspaces by subscribing to its users. It is headquartered in New York but has 651 locations in 114 cities around the world, including the main cities in Latin America. It has facilities in Santiago de Chile, San Jose in Costa Rica, Buenos Aires, Lima, Bogota, Rio de Janeiro, Mexico City, among others.
Since its foundation in 2010, WeWork has been in charge of acquiring large extensions of premium real estate in the world's largest cities, to reconvert them into offices and shared workspaces, with exclusive design elements and all the comforts.
You can hardly choose a line of work with higher costs. Although last year was a great year for WeWork, doubling its profits from $886 million in 2017 to $ 1,800 million, it also showed that it is far from profitable, recording net losses of almost $ 2,000 million in the same period, according to The New York Times.
Now, intending to start to report profits, they plan to go public and market their shares. WeWork follows in the footsteps of other technological 'deaconries' (companies valued above $ 10 billion) that have hit the stock market this year, such as Lyft, Pinterest and soon Uber. But WeWork should not be confused with the latter; it is not a technology company; it is a fundamentally real estate company.
The doubts around WeWork
Since rumors began to circulate about the WeWork valuation and its possible exit to the stock market, doubts arose about its business model. WeWork's most recent estimate, after an investment by Japanese technology giant SoftBank, is between $ 35,000 and $ 40,000 million, making it the second most valuable startup in the world behind Uber.
For many Wall Street analysts, this figure not only lacks credibility but has been vulgarly inflated. Scott Galloway, a marketing professor at New York University and a prominent business analyst, has even called WeWork 'the most overrated company in the world.' If WeWork actually worth $ 40,000 million, each of its members would then be worth $ 156,250, according to The Fast Company, a ridiculous figure compared to the $ 11,300 that is worth every member of his rival company, Regus.
Means like Financial Times, even, estimate that, if WeWork was measured with the same standards as its competitors, and if its growth expectations were moderated, WeWork should hardly be worth more than $ 3,000 million.
WeWork's most valuable asset is its real estate, and it has a lot. Last year WeWork became the largest property owner in New York, surpassing JP Morgan Chase, and already has more than 930,000 square meters of office space.
Although all this sounds good and has considerable value, it is not enough to justify a valuation of $ 40,000 million, mainly because they have not yet proven to be able to turn all this workspace into profitability. Besides, that the main asset of a company is the real estate, and particularly in the case of WeWork that takes the accumulation of real estate to the extreme, makes the financial future of the company depend on an appreciation of it over time, something that can not be predicted or guaranteed.
Growth or profitability
Besides, WeWork's considerable growth is supported by the substantial investment it has received from private funds, particularly SoftBank and its multimillion-dollar Vision Fund, which has strong support of $ 45,000 million from the government of Saudi Arabia. has contributed over $ 8,000 million to the startup.
This money has enabled its rapid expansion and the growth of its user base, but it calls into question the future performance of the company. Once the capital injections stop, how will your growth continue? And even the question arises: can they also retain their current user base? While WeWork has $ 6.6 billion in cash, as The New York Times says, in the general scheme for the future this amount will do little to ensure its real estate empire.
It should be noted that, although WeWork has filed the registration documents that allow its exit to the stock market before the US financial authorities, it could still decide not to make its initial offer of shares.
LatinAmerican Post | Pedro Bernal
Translated from "WeWork: el gigante del coworking y su controversial salida a la bolsa"