WeWork, which now goes by The We Company, will be accelerating its IPO to September this year. This firm is a pioneer in the realm of coworking where they typically take 15-20 year leases on office space, renovate with a chic aesthetic, and sublease to subtenants with flexible terms and a host of amenities.
At a $47 billion valuation many traditionalists in the real estate sector feel the firm is vastly overvalued and won't perform well in its IPO. They point to WeWork's performance in 2018 where they had a $1.9B loss against $1.8B of revenue. There's also concern about founder Adam Neumann cashing out more than $700m ahead of the IPO - a move that raises eyebrows from seasoned investors. Skeptics also point to the company starting in 2010 and not having been battled-tested in a recession where freelancers and entrepreneurs may be forced to close up shop.
A useful case study comes in the form of WeWork’s current main market competitor, IWG/Regus. Regus launched in the late 1980s and expanded rapidly through the 1990s. However, in the wake of the dot-com bubble and the subsequent recession, demand for work space plummeted, and Regus declared Chapter 11 bankruptcy in 2003 (CBInsights). Another means of comparison is Boston Properties Inc. who owns over 196 mostly Class A office buildings (51.6m sf) and has a valuation of $20.2B. This is a fraction of WeWork's value despite WeWork's membership largely working out of 10m sf in office space that they lease and don't own.
But the founders of WeWork point to several factors that give it the secret sauce to reach their valuation: network effects with growing membership, the ability to build more efficiently at scale, enterprise accounts like IBM and Facebook that need flexible space, diversification into areas like childhood education and tech incubation, and movement into building ownership.
Dave Fano, WeWork’s chief growth officer, believes that, in the long-term, companies won’t own and operate their own headquarters. Big firms will still want a splashy office in the urban core with a sign on top of the building. Why should they deal with the hassle of management and set-up, when WeWork can achieve economies of scale and deliver a better experience for less money? (Curbed)
Will WeWork become the real estate partner of the future that redefines the usage of space in the 21st Century? Or is this the ultimate indicator of a VC-backed 'unicorn' culture that receives unjustifiably high valuations at the expense of its investors? I'll be watching from the sidelines on this IPO but would love to hear your thoughts.