China’s largest co-working player Ucommune files for US IPO

Ucommune is seen as being in a similar situation as WeWork, with a track record of fast expansion and large losses. However, the company’s acquisition of a marketing services business is hoped to offset the risks of the business model.

Meanwhile, Daqing Mao, the company’s founder, holds 35.27% of the business, which is expected to mitigate WeWork-style issues around leadership governance. Wework's IPO was cancelled earlier this year, and the company has seen its valuation drop nearly 80% in recent months. Much of the blame has been placed on founder Adam Neumann, who was ousted as CEO in September.

Launched in 2015, Ucommune manages 197 co-working spaces across 41 cities in Greater China and Singapore with a total area of 6.5 million square feet, compared to WeWork’s 8.9 million square feet. As of September, 171 spaces were in operation and their occupancy rate was approximately 79%, compared to 60% in 2018.

Investors in Ucommune have included ZhenFund, Sequoia Capital China, Innovation Works, CEC Capital, Silk Road Huachuang Investment Management, Shandong Guohui Investment, Hanfor Capital, YungPark Capital, Gopher Asset Management, and All-Stars Investment, the latter of which led a $200 million Series D round last year.

The company recorded revenue of RMB874.6 million ($122.4 million) in the first nine months of 2019, a 210% increase year on year. For the full year of 2018, revenue rose 168% to RMB448.5 million.

The fast growth has come at a high price. Ucommune recorded a loss for the first nine months of 2019 was RMB572 million, a 111% increase year on year. The annual loss widened 19% during 2018 to RMB445 million.

Like WeWork, the company claims that once its pace of growth slows and existing locations are able to mature, revenues will grow and costs will fall, leading to profitability. However, it has not been able to confirm a timeframe for the plan.

Ucommune claims to have offset the risk by expanding into new businesses. In 2018, the workspace leasing business was dominant, representing 93.4% of the revenue, but this dropped dramatically to 48% as of the end of September due to increased activity in integrated marketing and branding services.

In December 2018, Ucommune acquired a 51% equity interest in Shengguang Zhongshuo, a digital marketing services provider co-established by Guangdong Advertising Group, one of the largest advertising companies in China.

Further diversification is said to be achieved through an asset-light model. Among Ucommune’s 197 spaces, 39 were run under a model whereby the company provides space design, construction and management services, while landlords bear most of the capital investments.

Ucommune has also started an e-commerce service called U Product in August, which allows members to participate in group purchases of high-quality products at favorable prices ordered on the platform and delivered to the company’s co-working spaces. U Product has facilitated about 15,200 orders with gross merchandise volume of RMB8.8 million in August and September 2019.

By the end of September, Ucommune had cash and cash equivalents of RMB208 million, while net cash used in operating activities was RMB231 million for the first nine months of 2019. The cash can only sustain operations for another three quarters if there is no new liquidity coming in.

Financial details of the IPO have not been disclosed.

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• Topics
• Greater China
• IPO
• Real estate
• Technology
• China