Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Capital Markets

WeWork continues to progress towards an IPO that could come as early as the end of this year. It had filed a confidential prospectus with the SEC already,  is reportedly in talks to buy in its India affiliate for $1.9bn,  and is also talking to banks to raise $3-4bn in debt funding to reassure potential equity investors it has sufficient resources to reach break-even.Whilst eye-popping operating losses have generated most of the headlines, we see a path to profitability over the mid-term. The main question is whether anticipated growth supports a valuation of $20-$47bn based on previous funding rounds. We think that even the bottom of that range is too high based on our own preliminary forecasts, which generate an equity value of $12bn whilst revenue multiples suggest a value of $9-22bn.In this report we talk about the sector opportunity, provide detail on our forecasts and valuation, and have included a list of suggested topics/questions for management. The company is reportedly considering an analyst day later this month in NYC, which could go some way in clarifying outstanding issues.

WeWork continues to progress towards an IPO that could come as early as the end of this year. It had filed a confidential prospectus with the SEC already,  is reportedly in talks to buy in its India affiliate for $1.9bn,  and is also talking to banks to raise $3-4bn in debt funding to reassure potential equity investors it has sufficient resources to reach break-even.Whilst eye-popping operating losses have generated most of the headlines, we see a path to profitability over the mid-term. The main question is whether anticipated growth supports a valuation of $20-$47bn based on previous funding rounds. We think that even the bottom of that range is too high based on our own preliminary forecasts, which generate an equity value of $12bn whilst revenue multiples suggest a value of $9-22bn.In this report we talk about the sector opportunity, provide detail on our forecasts and valuation, and have included a list of suggested topics/questions for management. The company is reportedly considering an analyst day later this month in NYC, which could go some way in clarifying outstanding issues.

WeWork: Even $20bn Is a Stretch Valuation - A Deep Dive and Closer Look at Investment Issues

Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<a href="https://www.smartkarma.com/entities/28061" target="_blank" data-smartkarma-citation="entities:28061:1">WeWork </a>(rebranded now as The We Company) is another unicorn eyeing for an IPO this year. WeWork confidentially filed for its IPO with the SEC late last year (December 2019). The company has not yet set a date for its IPO, but considering that the filing was done just weeks after Uber, WeWork’s IPO debut could also be just around the corner. The company is yet to release its S-1 statement to the public.WeWork seems to be following the footsteps of many unicorns these days, by pursuing a strategy of “growth at any cost”. WeWork’s revenue increased by around 10x over the past three years, but this has come at the expense of heavy losses and significant cash burn. WeWork’s robust growth is no doubt going to be its main selling point in the IPO, but with the recent examples of <a href="https://www.smartkarma.com/entities/430" target="_blank" data-smartkarma-citation="entities:430:1">Uber (UBER US)</a> and <a href="https://www.smartkarma.com/entities/24423" target="_blank" data-smartkarma-citation="entities:24423:1">Lyft Inc (LYFT US)</a> who were penalised heavily by public investors for pursuing unprofitable growth, we are not very confident that investors would buy WeWork’s growth story either.Perhaps the only way that WeWork could justify its unprofitable growth is through some really strong unit economics. However, according to our analysis, WeWork seems to be barely profitable even at the per desk level. WeWork’s higher spending on overheads and leasehold improvements seem to be stressing out its bottom line.

WeWork (rebranded now as The We Company) is another unicorn eyeing for an IPO this year. WeWork confidentially filed for its IPO with the SEC late last year (December 2019). The company has not yet set a date for its IPO, but considering that the filing was done just weeks after Uber, WeWork’s IPO debut could also be just around the corner. The company is yet to release its S-1 statement to the public.WeWork seems to be following the footsteps of many unicorns these days, by pursuing a strategy of “growth at any cost”. WeWork’s revenue increased by around 10x over the past three years, but this has come at the expense of heavy losses and significant cash burn. WeWork’s robust growth is no doubt going to be its main selling point in the IPO, but with the recent examples of Uber (UBER US) and Lyft Inc (LYFT US) who were penalised heavily by public investors for pursuing unprofitable growth, we are not very confident that investors would buy WeWork’s growth story either.Perhaps the only way that WeWork could justify its unprofitable growth is through some really strong unit economics. However, according to our analysis, WeWork seems to be barely profitable even at the per desk level. WeWork’s higher spending on overheads and leasehold improvements seem to be stressing out its bottom line.

WeWork IPO Preview: “Growth at Any Cost” and Some Really Bad Unit Economics

United States

WeWork Inc. provides co-working spaces for individuals and entrepreneurs. The Company offers private offices, office suites, headquarters, and custom build out options to fit a variety of office needs, as well as desk spaces and conference rooms. WeWork serves customers worldwide.

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WeWork (WEWKQ US)

WeWork: Even $20bn Is a Stretch Valuation - A Deep Dive and Closer Look at Investment Issues

WeWork continues to progress towards an IPO that could come as early as the end of this year. It had filed a confidential prospectus with the SEC...

Kirk Boodry

WeWork IPO Preview: “Growth at Any Cost” and Some Really Bad Unit Economics

WeWork (rebranded now as The We Company) is another unicorn eyeing for an IPO this year. WeWork confidentially filed for its IPO with the SEC late...

Supun Walpola

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