The Hazards of Joining WeWork’s Community

“We” would like investors to embrace the community atmosphere it has created through its office-sharing company. “You” may prefer clearer financial statements and profits.

WeWork parent We Co., the New York-based company founded in 2010 by

Adam Neumann,

has filed to list shares to trade under the ticker symbol “WE”. The word “community” appears 150 times in its filing. But profits are nonexistent, and losses are worsening. If that doesn’t raise eyebrows for would-be investors, recent loans to Mr. Neumann might.

The office-sharing company has done a few things well. What began as a business providing working space for freelancers and startups has expanded to meet the needs of many companies that are looking for less-binding lease obligations. As of June this year, memberships had roughly doubled from a year earlier, as has revenue. With offices in 111 cities as of June 1, WeWork’s growth is commendable.

The company’s prospectus lauds the benefits for many different groups, too, in what it calls the “WeWork Effect.” It extols benefits for landlords, cities and neighborhoods, including an incubator program that helps veterans and a refugee initiative that supports displaced individuals. Mr. Neumann and his wife in the prospectus tout their decision to pledge $1 billion to fund charitable causes within 10 years following the offering.

Prospective share buyers will want to know what’s in it for them, though. Based on the income statement, the answer appears to be not much. The company posted losses of $1.6 billion last year, almost twice as high as the prior year. Losses from operations are going in the wrong direction, too, widening nearly every quarter since mid-2017 and hitting $730 million in the three months through June 2019.

WeWork also chooses to focus on a decidedly nonstandard profit measure: “contribution margin excluding noncash GAAP straight-line lease cost.” This metric gets around accounting rules requiring companies to book lease costs evenly across time, allowing them to book a benefit on short-term arrangements such as free rental periods at the start of their leases, deferring future costs. The merits of such an adjustment are dubious, and importantly, the company’s results seem to be leveling off even by this nonstandard measure, declining slightly in the June quarter compared with the previous quarter.

That isn’t all. In addition to a recent debt offering, the company has issued a $362 million loan to Mr. Neumann at an interest rate of just 2.89%. Shareholders might reasonably wonder why they need to be underwriting the founder’s lifestyle at such an enviable rate, especially when underwriters in the offering, including

UBS
,

JPMorgan Chase

and

Credit Suisse
,

have provided their own line of credit of up to $500 million to Mr. Neumann.

WeWork has yet to prove that its business deserves the $47 billion value awarded it in the private markets. Losses andmurky financial metrics are by no means unique to it, but the choppy post-IPO performance of other companies without a clear path to profits like Uber Technologies and Lyft hint at the reception that awaits it. Investors shouldn’t be seeking to join the community of regretful IPO buyers.

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