Remember I scream, you scream, we all scream for ice cream?
Well, seems we have a new version for some older kids (the pre-IPO investors of WeWork).
I work, you work, we all work for WeWork!
Since the WeWork IPO has been making news headlines for the last few weeks, here’s a quick note on it.
The company.
WeWork is a NY-based company that provides shared workspaces. For young businesses. Typically, technology start-ups.
Now pause. Sense the risk. Think start-up risk. Then add technology risk. Then business model risk.
These risks belong to the folks who provide cash flows to WeWork.
And so now, appreciate the WeWork model risk.
Can you sense the risk multiplying with every single word?
The timeline.
As of 2014, WeWork investors included J.P. Morgan Chase & Co, T. Rowe Price Associates, Wellington Management, Goldman Sachs Group, the Harvard Corporation, Benchmark, and Mortimer Zuckerman, former CEO of Boston Properties.
As of 2015, the firm had 51 shared workspaces across US, Europe and Israel. As of 2016, private investors valued the company at $16 billion. During 2016, the company generated $430 million in revenue while incurring a net loss of $440 million.
As of 2017, Softbank and a Chinese private equity firm ensured that the expansion reached Southeast Asia (mainly China and Singapore) and that the valuation reached $20 billion. By the way, during 2017, the company generated $890 million in revenue while incurring a net loss of $990 million. Yes, you read that right.
As of 2018, more of the same happened. More funds raised. More rents owed. Both revenues and losses doubled. During 2018, revenues touched $1.8 billion while net losses zoomed to $1.9 billion.
According to the Financial Times, the company lost $219,000 every hour of every day from March 2018 through March 2019. Insane, right?
Are you sensing the Greater Fool theory in play? Many asset valuations, and especially real estate valuations, work on that theory.
The pre-IPO.
In January 2019, WeWork received its latest round of VC funding from Softbank, valuing WeWork at $47 billion. The very same month, its founder Adam Neumann created a new trademark called We, then decided to change the legal name of WeWork to We, and charged WeWork $5.9 million as licence fees!
Over the next few months, Adam Neumann, dumped $700 million worth of stock pre-IPO. Just more proof of fraudulent intent if you weren’t convinced already!
A few weeks ago, WeWork floated an IPO valuation of $50 to $60 billion.
Over the past few days, the IPO valuation has been revised downwards. First to the $20-25 billion range. Next to the $15-18 billion range. And as of this morning, to the $10-12 billion range. It's a mere $40 billion cut!
Closing thoughts.
I don’t know how to value a company that raises $1 in external funding, generates a revenue of $0.90 and loses $1.10. And then repeats that exercise every year. Each time with greater negative impact.
What I do know is that Softbank and global institutional investors like J.P. Morgan Chase & Co, T. Rowe Price Associates, Wellington Management, Goldman Sachs Group, the Harvard Corporation, Benchmark, and more, have invested over $12 billion till date.
So why would they want to exit this investment at $10 billion?
I have a feeling they know the business model is broken! This is classic pump-and-dump in action.
Dear investor, please beware. Do not provide any more lifelines to WeWork.
P.S. Those who know me know that I have a golden rule: never invest in IPOs. More on that later.
P.P.S. I owe a ton of gratitude to Professor Damodaran and Professor Galloway for their research and analysis on WeWork.
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