Will WeWork Work? Looking at the SEC S1 IPO Filing

Well, it’s happening. WeWork has filed to go public.  This is going to be big… what’s not clear is will it be a big win or a big flop. The filing sheds light on many of the questions people have been asking for almost a decade. How is this thing making money? Instead of holding off the drama… I’ll jump right to the punchline. It isn’t making money.

September 17, update: Well, it ain’t happening now. The IPO has been delayed after much angst over corporate governance, the business model and the founder.

Let’s Look at the numbers:

Locations, cities, and membership are all growing.

 

THE OFFERING

Here’s a stock offering that has a 25-page discussion of the risks of investing and about 80 pages of bullshit marketing hooey trying to explain why buying a company that spends $1.50 for every dollar it takes in in revenue going public on the precipice of a market crash so that the current investors can dump the stock on a bunch of suckers who will be stuck with a pile of poo during the nuclear winter of the coming recession. A recession that will not only deflate the stock but eat into revenues. It doesn’t look like existing investors are selling shares. It seems like they’re just looking for partners in losses.

WeWork is not ready to go public but if the current investors can’t hit the window between the current market top and the coming market drop, they’ll have to fund the companies huge losses out of their own pockets for years. They’re selling at the top and dumping the crap to suckers before the drop.

Check out the statement on the use of proceeds:

Use of Proceeds

“We currently intend to use the net proceeds of this offering for general corporate purposes, including working capital, operating expenses and capital expenditures. Our management will have broad discretion in the application of the net proceeds of this offering, and investors will be relying on the judgment of our management in this regard. The timing and amount of our actual expenditures will be based on many factors, including cash flows from operations and the anticipated growth of our business. Pending their use, we intend to invest the net proceeds of this offering in short-term, investment grade, interest-bearing instruments or hold them as cash.”

If you’re saying to yourself… at least as a shareholder… I will have a say. You might want to check out the supervoting stock that you’re not going to own.

Shares Offered

There will be 3 classes of common stock: A, B and C

  • Voting Rights Per Class of 
    • Class A  – 1 vote per share
    • Class B and C20 votes per share
    • It appears that the A shares will be offered to the public, it is unclear who will own or have the ability to purchase the b shares and my reading is that the C shares will be held by the current owners of the company and will guarantee they retain control of the company through supervoting rights after the sale.
  • Conversion Rights
    • Class A – just like any other common share
    • Class B – Our Class B common stock is convertible into shares of our Class A common stock on a one-for-one basis at the option of the holder. In addition, each share of Class B common stock will convert automatically into one share of Class A common stock upon any transfer, except for certain transfers described in our restated certificate of incorporation. (In other words… the rights of Class B shares, for instance, the 20 to 1 voting advantage over common shares is not transferable. The rights are intended only for the original owner).
    • Class C – Subject to certain restrictions, holders of partnership interests (other than direct and indirect subsidiaries of The We Company) may exchange their partnership interests for, at our option, shares of Class B common stock or cash. Upon the exchange of partnership interests in the We Company Partnership or the forfeiture of profits interests in the We Company Partnership, the corresponding shares of Class C common stock will be canceled. Shares of Class C common stock cannot be transferred other than in connection with the transfer of the corresponding partnership interests in the We Company Partnership.

Financials

So the loses keep growing but I’ll say this for this business, they’ve gone from losing a dollar of every dollar they take in in revenue to losing only 1/2 that much! What a business. In the first 1/2 of this year, they’ve only lost $1.45 for every dollar in revenue. Who wouldn’t want a piece of that?

Full Year       First 1/2 of the year
2016 2017 2018   2018 2019
 $    0.99  $    1.00  $      0.88    $    0.82  $      0.45

The good news is that the stockholders will be buying a company that has negative equity of 2 1/2 billion dollars in negative equity.

Balance Sheet  
Cash and cash equivalents  $  2,473,070,000.00
Total current assets  $  3,032,323,000.00
Property and equipment, net  $  6,729,427,000.00
Total assets  $ 27,047,235,000.00
Total liabilities  $ 24,641,746,000.00
Total convertible preferred stock included as temporary equity  $  3,591,086,000.00
Total redeemable noncontrolling interests included as temporary equity  $  1,113,807,000.00
Total equity (deficit)  $ (2,299,404,000.00)

Executive Compensation

How much do the execs get paid to lose money? Total Comp for the top three execs:

  • $0 and zero stock options – CEO, Adam Neuman, took no compensation in 2018. He does own 100% of the Class C stock. He owns a total of 116 million shares the majority of which are Class B and C super-voting shares. (Update: September 12, 2019: this doesn’t count the $6.9 million Adam earned when he sold the trademark to “We” back to WeWork. When the market found that out he returned the cash.)
  • $676,000 – CFO & Co-President (Because you need a partner or another President to blame when you lose this much money)
  • $878,885 – Chief Legal Officer & Co-President
  • WTF? No listed Cheif of Staff?

Who Currently Owns WeWork?

Who are these people you say?

According to crunchbase:

  • Adam Neumann is the Co-founder and CEO of WeWork, which provides workspace, community, and services to more than 60,000 members in more than 30 cities around the world. Adam, along with co-founder Miguel McKelvey, started WeWork in 2010 in the Soho neighborhood of New York City with the intention of creating a workspace environment centred around the idea of community, and the belief that people will achieve more together than they could on their own. Adam and team want to grow WeWork everywhere to serve everyone, expanding globally and focusing on building technology that connects members around the world so they are empowered to do what they love.
    .
    Previously, Adam co-founded and ran Big Tent Inc., where he developed Egg Baby and Krawlers, well-known brands of children’s clothing.Adam lives in New York City. He is the proud father of four children, Elle, Loulou, Isaiah, and Elijah, and loving husband to his wife, Rebekah.
    .
  • Jen Berrent – A career attorney joined WeWork as COO joined WeWork, October 2014
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  • Bruce Dunlevie is a seasoned veteran of venture capital with more than 20 years experience in high-tech investing. Since May 1995, Bruce has been a General Partner of Benchmark, a venture capital firm. Bruce has served as a member of the board of directors of ServiceSource International, Inc., a service support provider, since December 2004.
    .
    Bruce previously served as a member of the board of directors of Rambus Inc., a technology licensing company, from March 1990 to June 2011, and as a member of the board of directors of Palm, Inc., a provider of mobile products, from October 2003 to October 2007. Bruce holds a B.A. in History and English from Rice University and an M.B.A. from the Stanford Graduate School of Business.
    .
  • Artie Minson (Arthur Minson) is the president and chief operating officer at WeWork. In this role, he works with the WeWork senior management team in scaling WeWork’s operations and expanding the company’s presence globally. Minson also has direct oversight of the company’s finance, corporate development, corporate communications, government affairs, information technology, and supply chain functions.
    .
    Prior to joining WeWork, Minson served as the chief financial officer of Time Warner Cable, and before that, as AOL’s chief operating officer and chief financial and administrative officer.
    .
    Minson graduated cum laude from Georgetown University with a bachelor’s degree in accounting and is a member of Georgetown’s Board of Regents. He also holds an MBA from Columbia University. A native New Yorker, Artie is a graduate of Regis High School in New York City where he serves on the school’s Board of Trustees. (according to Georgetown Entrepreneurship Web Site).
    .
  • Ron Fisher is the Managing Partner of Softbank. Ron joined SoftBank in 1995, overseeing its U.S. operations and its other activities outside of Asia, and was the founder of SoftBank Capital. He is currently Director and President of SoftBank Holdings, Inc. and also serves as a member of the board of directors of SoftBank Corp., Japan. Ron has over 30 years of experience of working with high growth and turnaround technology companies.Prior to joining SoftBank, Ron was the CEO of Phoenix Technologies Ltd., the leading developer and marketer of system software products for personal computers, from 1990 to 1995.
    Ron joined Phoenix from Interactive Systems Corporation, a UNIX software company that was purchased by the Eastman Kodak Company in 1988.      At Interactive Systems he served for five years as President, initially as COO and then CEO. Ron’s experience prior to Interactive Systems includes senior executive positions at Visicorp, TRW, and ICL (USA).
    .
    Ron serves on the boards of several public and private companies, including Cloud Engines (Pogoplug), Desktone, E*Trade Group, LiteScape Technologies, Nellymoser and Swirl. Ron previously served on the board of GSI Commerce (sold to eBay in 2011).
    .
    Ron earned an MBA from Columbia University, New York, and a Bachelor of Commerce from the University of Witwatersrand in South Africa.
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  • Lew Frankfort is the founder of Benvolio Group, the investment arm of the Frankfort family which focuses on direct investing in early-stage disruptive consumer-facing concepts. Lew serves as the Chairman of Flywheel Sports, Inc., as a member of the Board of Directors of WeWork, and as an Executive in Residence at Sycamore Partners.
    .
    In addition, Lew holds the title of Chairman Emeritus of Coach, Inc., the premier, global American accessories brand, having recently retired from the company as Executive Chairman after 35 years. During his tenure as Chief Executive Officer, Lew transformed Coach from a cottage-industry manufacturer of leather goods into a leading global, modern luxury accessories brand. Prior to joining Coach, Lew held various management roles in New York City government, culminating in the position of Commissioner of New York City’s Head Start and Day Care Programs. He holds a BA degree from Hunter College and an MBA from Columbia University. He is also affiliated with a number of not-for-profit organizations.
    .
  • Steven Langman co-founded Rhône in 1996 and has led the day to day management of the firm since inception. Rhône is an alternative asset manager in private equity, real estate and venture capital. Prior to joining Rhône, Langman was a managing director of Lazard Frères, where he specialized in mergers and acquisitions. Before joining Lazard Frères, he worked in the mergers and acquisitions department of Goldman Sachs. He has more than three decades of experience financing, analyzing and investing in public and private companies, as well as serving on the boards of a number of Rhône portfolio companies. Langman currently[when?] serves on the board of directors of CSM Bakery Solutions, Fluidra, HBC, Vistajet Global Holdings and The We Company. He also serves as a director and advisor to a number of philanthropic and educational institutions. Langman received a B.A. with highest honors from the University of North Carolina at Chapel Hill and a M.Sc. from the London School of Economics (bio from Wikipedia)
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  • Mark Schwartz has been Vice Chairman of Goldman Sachs and Chairman of Goldman Sachs Asia Pacific since rejoining the firm in June 2012. He initially joined the firm in 1979 in the Investment Banking Division. In 1985, he moved to Fixed Income, where he founded and led the High Yield Department until 1990. From 1991 to 1997 he was Head of the Capital Markets Department, from 1997 to 2001 he was President of Goldman Sachs Japan, and from 1999 to 2001 he was Chairman of Goldman Sachs Asia.
    .
    Prior to rejoining the firm, Mr. Schwartz was the Chairman of MissionPoint Capital Partners, an investment firm he co-founded and which is focused on the transition to a lower-carbon economy. He previously served as a Senior Advisor and then as President and Chief Executive Officer of Soros Fund Management.Mr. Schwartz serves on the Boards of Directors of MasterCard Inc. and Softbank Corp. He is a trustee of New York-Presbyterian Hospital , a member of its Executive Committee and Vice Chairman of its Audit Committee. Mark is also a member of the Executive Committee of the Morgan Stanley Children’s Hospital. He serves as trustee at Massachusetts General Hospital (MGH), and on the Board of Directors of the Ragon Institute of MGH, Massachusetts Institute of Technology and Harvard University.
    .
  • John Zhao is the founder and Chief Executive Officer of Hony Capital, a leading private equity investment company in China. Zhao also serves as Executive Vice President of Hony’s sponsor firm, Legend Holdings, one of China’s best known companies and the parent of Lenovo Group (HK.992). Under Zhao’s leadership, Hony Capital currently manages over USD 6.8 billion of assets and has invested in more than 60 companies domestically and abroad.
    Prior to launching Hony Capital, Zhao held a number of senior management positions in US companies. Zhao also serves on the boards of several Hony’s portfolio companies and other prestigious companies including Lenovo, Fiat Industrial and China Pharmaceuticals.Zhao holds an MBA degree from the Kellogg School of Management at Northwestern University, dual master’s degrees in electric engineering and physics from Northern Illinois University, and a bachelor’s degree in physics from Nanjing University.

My Thoughts

Yes, folks, I folks, contrary to your opinion I do think and therefore I think I have thoughts.  One thought is that I’d sooner invest in Jonathon Perrelli before I invested in this thing called WeWork or We Company. I think I’d have a greater chance of making money if I was stupid enough to invest in LifeFuels. If WeWork gets out in time, the offering is not withdrawn before the coming crash… It’s going to be a fun ride to watch.  Some people may point out how the losses have narrowed from paying $2 for every dollar of revenue to paying only $1.50. Yet if all the sweetheart deals the company negotiated from landlords for new space expire and they are forced to pay full market price… that will be a drag on profits. With saturated markets, will the be able to maintain high occupancy rates?

Yup… not for me.

September 21, 2019 UPDATE:  More maleficence, mismanagement, has bee reported, the IPO has been shelved. Adam Neumann has been exposed as a carnival barking con man. For instance, Adam’s family office trademarked We as a corporate name and then sold that trademark to WeWork for $6.9 million. After this was discovered he returned the money. He had the company invest in a company that makes wave pools because Adam loves surfing. Adam owns 10 buildings and then leases them back to the company. This company is a corporate governance nightmare! This Scott Galloway article does a much better job of getting cranky on WeWork than I can ever do.