WeWork IPO reveals extent of global scaling risk

WeWork provides shared office space for entrepreneurs, freelancers, and large corporations. Since its launch in 2010 in New York, the company has grown to 528 locations in 111 cities worldwide, 36 of them in Asia. More than half of its 527,000 members were based outside the US as of June 2019, according to the prospectus, and 40% of its members were organizations with more than 500 employees, up from 20% in 2017.

WeWork expects to see strong growth in the future fueled by trends such as concentration of the world’s population in cities, growing pressure on companies to expand internationally, and an increasingly independent workforce. The company believes there are 149 million potential members in its existing cities, based on the number of workers in professions that could use its shared office space solutions, and that it has only achieved 0.6% penetration in this market.

However, expansion has come at a high price, with WeWork reporting a net loss of $1.9 billion for the year ended December 2018, up from $939 million the previous year. Revenue for the same period grew from $886 million to $1.8 million, primarily from the sale of memberships. WeWork indicated that it expects to continue running a loss for the foreseeable future, particularly if it continues to grow at the current rate, although it does not expect its net loss to increase as a percentage of revenue in the long term.

Currently 70% of WeWork’s locations have been open for 24 months or less, which the company considers insufficient time to establish a stable customer base and start generating reliable revenue to offset its initial investment costs. Once the pace of growth slows and existing locations are able to mature, WeWork expects revenues to grow and costs to fall, leading to profitability. However, the company has not been able to confirm a timeframe for the plan. 

Asia has been a particularly strong focus area, with the company forming joint ventures aimed at China, Japan, India, and the greater Asia Pacific region. SoftBank Group has been a major backer of the company: it owns a 50% stake in the Japan JV and a 40% stake in the Asia Pacific venture, and holds 41% of the China branch along with Hony Capital and Trustbridge Partners. The Japanese internet giant is currently WeWork’s largest investor, with 114 million shares, having committed more than $10 billion to the company and its subsidiaries since 2017.

Consolidation has helped WeWork expand in Asia, with several major acquisitions helping the company to rapidly boost its presence in key economies. The purchase of Naked Hub last year gave WeWork 24 locations across Asia including in Beijing, Hong Kong, Hanoi, and Ho Chi Minh City, and followed the acquisition of Singapore-based Spacemob, with locations in Singapore, Indonesia, and Vietnam, in 2017.

Financial terms of the IPO have yet to be disclosed. WeWork indicated that the primary objective of the offering is to increase its capitalization and financial flexibility, while enabling access to the public equity markets for itself and its shareholders. Proceeds will be used for general corporate purposes.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• North America
• IPO
• Technology
• Real estate
• USA
• Exit
• Softbank
• Hony Capital
• Trustbridge
• TMT