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The We Company S-1

by dawhizkid on 8/14/19, 11:27 AM with 330 comments

by mmillin on 8/14/19, 11:37 AM
My favorite part of new tech company filings is looking at the risk section and finding something to the effect of: "We are not profitable, and may never be."
> We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future.
I understand the reasoning behind having these in the document, but I always get a kick out of seeing it said so plainly.
by gdgtfiend on 8/14/19, 3:26 PM
WeWork has $33.9 Billion in Non-canceable lease commitments, and it's lease payments are increasing 100% YoY. I think that is the true ticking time bomb for this company. In a world where billion dollar losses (Uber) seems somewhat normal, those lease obligations are still outrageous, and those payments will come due eventually, whether they have the money or not. In 2019 they attributed over $800 Million to operating lease costs. Every year, based on static growth that will double, and my bet is that it may even more than double in some cases. This isn't so much a company as it is a race to light cash on fire and run away.
by i_am_nomad on 8/14/19, 12:34 PM
Does the S-1 disclose the fact that the founder is also one of the company’s biggest business partners? He buys up properties and then leases them to WeWork. Seems like a red flag to me.
by xyzzy_plugh on 8/14/19, 3:54 PM
> We will be treated as an “emerging growth company” pursuant to the JOBS Act for certain purposes until the earlier of the date we complete this offering and December 31, 2019.
> These exemptions include ... reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis
I hadn't noticed this in recent big tech IPOs so I looked it up (Rule 12b-2):
> The term emerging growth company means an issuer that had total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year.
So they claim to have had under $1.07B of gross revenue in 2018, but they list $1.8B in revenue on page 21.
> We ceased to be an emerging growth company as defined in the JOBS Act on December 31, 2018. However, because we ceased to be an emerging growth company after we confidentially submitted our registration statement related to this offering to the SEC, we will be treated as an emerging growth company for certain purposes until the earlier of the date on which we complete this offering and December 31, 2019.
So they started the process before EOY 2018 where they knew they'd have $1B, so as to avoid disclosure until they are public. Sneaky!
Slack did the same thing, and had $1.05B in revenue for the previous tax-year when they registered (and $2.2B for 2018). I guess this is a convenient goalpost.
> Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.
To claim run-rate revenue like this feels imaginary and misleading.
by beager on 8/14/19, 12:55 PM
I’m really disgusted by how much recent tech IPOs inject pitch deck-style garbage into the S-1 filing, especially this one. I’ve always had a great amount of respect for the mediating nature of the S-1’s dry, candid, and ruthlessly honest assessment of business risks, and even though those things are still there, they’re blown out by marketing photos, full-page charts, and branding.
This is basically like putting perfume on a term paper. Regulators could do well to clamp down on this sort of activity, especially with the S-1’s reputation as a means to truly inform investors.
by cs702 on 8/14/19, 4:09 PM
A Bloomberg columnist's reaction on Twitter:
"I have only read the related party section in the WeWork IPO filing so far, and I am not kidding that it is THE MOST BANANAS THING I HAVE EVER READ."
https://twitter.com/ShiraOvide/status/1161601877517246464
by rbrtl on 8/14/19, 1:40 PM
> Upon completion of this offering, Adam Neumann will own or control more than 50% of the total voting power of our capital stock
Another Zuckerberg style IPO. Activist investors beware...
by led76 on 8/14/19, 3:02 PM
Based on the filing the company awarded 42M stock options to the CEO earlier this year. The filing mentions a share price of $110 per share, so that's over $4B.
That can't be normal, right? That's 10% of the entire company. It's more than Elon Musk got for Tesla by a long shot, and that was already controversial.
by ryanackley on 8/14/19, 12:38 PM
According to the prospectus, they lose so much money because they are building out new locations. Their break even point takes about a year for an individual location.
So theoretically, they have a path to profitability. I just wonder where they get the cash in the meantime. >$1B/year burn rate, ouch.
by richardwhiuk on 8/14/19, 1:01 PM
> We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness.
....
by tontonius on 8/14/19, 1:52 PM
If you wanna put those financials in perspective...
We Company financials chart: https://imgur.com/a/Xky1NNh
by mdszy on 8/14/19, 12:23 PM
That wegrow bit seems really strange and cultish with all the mentioning of "connecting with the universe" and "cosmic education".
by kgwgk on 8/14/19, 12:28 PM
“When applying our average revenue per WeWork membership for the six months ended June 30, 2019 to our potential member population of 149 million people in our existing 111 cities, we estimate an addressable market opportunity of $945 billion. Among our total potential member population of approximately 255 million people across our 280 target cities globally, we estimate an addressable market opportunity of $1.6 trillion.
“(...) By applying the average employee occupancy costs to our potential member population of 149 million people in our existing 111 cities, we estimate a total opportunity of $1.7 trillion. Among the approximately 255 million potential members across our 280 target cities globally, we estimate a total opportunity of $3.0 trillion.”
by ChrisBland on 8/14/19, 3:30 PM
An interesting thing happened a bit ago related to public companies and how they must account for leases in the accounting standards update 2016-02, Leases (Topic 842). For lessees, any leases that are over 12 months in duration will need to be presented on the company’s balance sheet as a right-to-use asset and corresponding liability for the obligation to pay rent.
So if you are a public company; you can rent space from WeCompany at an 11mo period and you can magically reduce your liabilities vs signing your own office space. While this may seem like a small change, this change could allow execs to improve their financials with accounting gimmicks.
by fierro on 8/14/19, 4:56 PM
Apparently Adam has pledged $1B in charitable donations over the next 10 years, otherwise he loses voting power. Is this normal?
>To evidence their commitment to charitable causes and to ensure this commitment is meaningful, if Adam and Rebekah have not contributed at least $1 billion to charitable causes as of the ten-year anniversary of the closing date of this offering, holders of all of the Company's high-vote stock will only be entitled to ten votes per share instead of twenty votes per share.```
by _sword on 8/14/19, 4:26 PM
Wework disclosed in this S-1 that the vast majority of its members are small organizations or a handful of seats purchased by “enterprises.” In the event of an economic downturn I wouldn’t think WeWork could reasonably expect to collect on its membership fees no matter its contracts - their small clients will go out of business or otherwise just stop paying. WeWork is still on the hook for its contractual lease obligations, with lease terms averaging 15 years by its disclosures and between $2.3-$2.4bn of contractual obligations per year in upcoming years.
I don’t see this going well.
by ummonk on 8/14/19, 4:35 PM
Their operating expenses + depreciation seems to consistently be equal to their revenue, before the pre-opening expenses, sales and marketing expenses, and new market development expenses.
Investing in growth at a loss makes sense for such a rapidly growing company, but can they make the unit economics work to turn a profit (after covering general and administrative costs as well) when they need to? They do claim to be offering the ability to house employees at less than half the market rate for traditional leases + operations, so I guess they'd be able to raise prices to a more sustainable level when required, assuming those numbers are accurate.
As put off as I am by this whole company's branding and vibe, they do seem to have built a major business and likely have a substantial lead in the space due to brand recognition and operational experience.
by ringo123 on 8/14/19, 1:38 PM
Looks like they need to go public or else they will die. 2.8 billion deferred rent on the balance sheet = house of cards
by 40acres on 8/14/19, 5:05 PM
I have a very unsophisticated eye, but it's difficult to avoid the feeling that a portion of modern VC is a pump and dump scheme. Particularly when taking into account recent equity moves by WeWork and Beyond Meat.
by nknealk on 8/14/19, 1:26 PM
The mechanics of deferred rent are fascinating here. They have 2.8 billion of deferred rent on their balance sheet. See note 11 and 17
by wbl on 8/14/19, 2:27 PM
"Our mission is to elevate the world consciousness". Let it never be said that tech startups were not very Californian.
by CodeSheikh on 8/14/19, 2:31 PM
This statement though "The We Company is committed to being meat, single-use plastics, and carbon emissions free."
by harikb on 8/14/19, 5:03 PM
From Page 199: "A majority of Adam’s awards are also tied to the Company’s performance as a public company, particularly an increase in our market capitalization that is sustained over a period of at least 60 days".
Seriously? just 60 days?
by empath75 on 8/14/19, 12:12 PM
Pets.com of the current tech boom, imo.
by ummonk on 8/14/19, 8:38 PM
I just realized that the last raise was at a $44 billion valuation. That seems unhinged. With the numbers in the S-1 filing, a valuation of closer to $20 billion seems more appropriate.
by gizmodo59 on 8/14/19, 1:11 PM
The executive compensation looks interesting.
I wish they publish the ceo salary before 2018. Is that more for a public perception?
And we see only CFO/Legal and no one else.
by jakear on 8/14/19, 3:23 PM
> We will be treated as an “emerging growth company” pursuant to the JOBS Act for certain purposes until the earlier of the date we complete this offering and December 31, 2019. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These exemptions include:
> - an exemption to include in an initial public offering registration statement less than five years of selected financial data
> - reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis
> - accounting standards transition period accommodation that allows for the deferral of compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards.
Number 2 seems surprising. Is that par for course in these dealings?
by Havoc on 8/14/19, 12:30 PM
Huge losses, no profitability in sight, pre-IPO founder cash-out
...yip to the moon!
by tw1010 on 8/14/19, 12:56 PM
How do you read things like this? I'm overwhelmed but feel like there are nuggets all over in this document.
by didip on 8/14/19, 5:08 PM
This is just my opinion, but I think it will be one of the most shorted stock this year and next year.
by epiphanitus on 8/14/19, 8:39 PM
Is there anybody here who believes WeWork will eventually be profitable? I know most of the people here are skeptics but I'm interested in hearing the other side.
by simplecomplex on 8/14/19, 3:43 PM
Another scam IPO for another scam tech company.
The fucking hot dog stand at my neighborhood park is in better financial shape than these toxic scam businesses like Uber or We.
by grandridge on 8/14/19, 4:47 PM
this guy one up'd madoff. took investor money, bought hard assets and now charging those investors rent. haha, dude should be in jail
by DickieGreenleaf on 8/14/19, 11:25 PM
Interesting analysis by SWFI guys, Top 10 Biggest Risks in WeWork are Revealed https://www.swfinstitute.org/news/74504/top-10-biggest-risks...
by arnvald on 8/14/19, 12:36 PM
Next Uber? Impressive growth, but their expenses grow at the same pace (they consistently need to spend ~$2 to earn $1).
WeWork's locations are wonderful, but if they want to start making money, they need to start charging more or lower the costs. Won't people just move to cheaper offices then?
by DickieGreenleaf on 8/14/19, 11:25 PM
Top 10 Biggest Risks in WeWork are Revealed https://www.swfinstitute.org/news/74504/top-10-biggest-risks...
by nvarsj on 8/14/19, 4:03 PM
It seems there are a lot of red flags here. The entire thing feels like a ponzi scheme to make the founder insanely wealthy - aka no real business here.
E.g. The founder took a near 0% interest loan for 30M in 2006, raised VC capital, than paid it back in 2009 with the inflated share values.
by fastbeef on 8/14/19, 3:46 PM
Perhaps this is a stupid question, but is an S-1 the first chance for the general public to get any insight into a company’s financials?
by lgats on 8/14/19, 6:32 PM
4.5 MB of HMTL... not including the images.
by u35517 on 8/14/19, 4:37 PM
Stupid filter keeping me in the dark.
Access Denied You don't have permission to access "http://www.sec.gov/Archives/edgar/data/1533523/0001193125192... on this server.
Reference #18.6fae0017.1565800624.11173d06
by dynjo on 8/14/19, 12:17 PM
You would literally have to be out of your mind to buy into this, especially as the founder cashed out $700 million right before IPO.
Best. Short. Ever.
by reneberlin on 8/14/19, 5:07 PM
Translation: WE slurp money - for granted.
by sidyapa on 8/14/19, 12:23 PM
The financials - https://imgur.com/a/NZONeDo
TLDR : Revenue - $1.535B | Costs - $2.904B | Loss - $1.369B
by segmondy on 8/14/19, 4:05 PM
The thing that's the most upsetting about this is that our 401k, pension funds, city funds will all end up buying this garbage.
by dwhitney on 8/14/19, 4:20 PM
tl;dr This dude, through various financial shenanigans, is loaning himself hundreds of millions of dollars to buy real estate and lease it back to WeWork. He then pays the loans off by issuing shares of We Work stock. Nothing is illegal about this, but it stinks to high heaven. But hey, he doesn't draw a salary as CEO!
From the Company Loans Section:
In May 2013 and February 2014, we issued loans to WE Holdings LLC for $10.4 million (interest rate 0.2% per year; maturity May 30, 2016) and $15.0 million (interest rate 0.2% per year; maturity February 4, 2017), respectively. The loans were collateralized by shares of our capital stock held by We Holdings LLC, and each loan provided us with the option to purchase a number of these shares in full settlement of the applicable loan. We exercised these options in May 2016, purchasing and retiring an aggregate of 8,398,670 shares of our capital stock in full settlement of the loans.
In June 2016, we issued a loan to Adam totaling $7.0 million (interest rate of 0.64% per year; maturity June 14, 2019). In November 2017, Adam repaid the loan in full, including $0.1 million in interest, in cash.
Then from the Properties Leased to The We Company section:
During the years ended December 31, 2016, 2017 and 2018, we made cash payments totaling $3.1 million, $5.6 million and $8.0 million to the [CEO] under these leases.
Sounds like they are straight up loaning the CEO money so he can buy buildings and lease them back to the We Company. Bonkers.
From the Personal Loans section:
Adam currently has a line of credit of up to $500 million with UBS AG, Stamford Branch, JPMorgan Chase Bank, N.A. and Credit Suisse AG, New York Branch, of which approximately $380 million principal amount was outstanding as of July 31, 2019. The line of credit is secured by a pledge of approximately [BLANK] shares of our Class B common stock beneficially owned by Adam.
From the WPI Fund and ARK section:
We have entered into operating lease agreements with [the CEO] in which the WPI Fund (or, following the ARK/WPI combination, other real estate acquisition vehicles managed or sponsored by ARK) have an interest, on what we believe to be commercially reasonable terms no less favorable to us than could have been obtained from unaffiliated third parties. During the years ended December 31, 2016 and 2017, no rent expense or cash payments had been recognized by us relating to these agreements as we were not yet occupying any properties owned by these entities and had not paid any rent under these leases. During the year ended December 31, 2018 and the six months ended June 30, 2019, we made cash payments totaling $0.0 million and $0.6 million, respectively, and we recognized
From Personal Real Estate Transactions section:
With respect to the six properties not currently occupied by the Company, in connection with exercising its option to acquire a property in the first year of the management agreement, the ARK Manager and the Company may determine that a subsidiary of the Company should occupy any of such properties to the extent the ARK Manager and the Company agree on terms of any such occupancy agreement.
by gregjw on 8/14/19, 1:11 PM
Oof.
by ecmascript on 8/14/19, 12:16 PM
Can someone give me a tldr of what this is/means and why it's almost at the top of HN?
by dbuder on 8/14/19, 12:39 PM
I've disliked WeWork from the beginning, it pretends to be a tech company but it's just an old school real estate play. I still wouldn't short it, especially early on.
by neil1023 on 8/14/19, 2:37 PM
TLDR: We Company (parent company of WeWork) filed for an IPO
by koiz on 8/14/19, 3:15 PM
WeWork shouldn't exist.
by carrozo on 8/14/19, 1:28 PM
Red flag company spends $2 to sell each red flag for $1.
by romanovcode on 8/14/19, 12:13 PM
First time I hear about this company. Why is it related to HN?
by webninja on 8/14/19, 12:17 PM
> We have 3 classes of stock: Class A shares which have 1 vote, class B shares, which have 20 votes, and class C shares which have 20 votes. All classes vote alongside each other.
I wouldn’t consider being an investor in this company unless class B or C shares are publicly traded. Just look at the underperformance of GOOGL, SNAP, and SQ for reasons why not to be an investor here.