WeWork Struggles to Convince Investors Ahead of IPO: The Factors Influencing its Predicament
Founded in 2010, WeWork became a sensation showing incredible growth in the past decade. The company planned to launch an Initial Public Offering in September 2019 but things have slipped away from them quite fast. The company continues to devalue its original $47 billion net worth and in a recent development, has lost its Chief Communications Officer.
The situation is at a point where the most frequently asked question about WeWork on Google is “Will it survive?” While the future is uncertain, we analyze some of the things that have made things look bleak.
WeWork’s revenue is rising, but the expenses are too
WeWork is a real estate company that owns the spaces it provides. This is done through lease or rental agreements. According to the company’s financial reports, they had a revenue of almost $1.8 billion in 2018 yet none of this translated into income. The company paid $1.2 billion in rents alone making up 65% of their revenues. The rest went to maintenance and other operating expenses.
The company is yet to disclose a profit
WeWork’s mounting expenses are the prime reason why they have been unable to post a profit in almost a decade. Although investors recognize the fact that startups can take way over a year to become profitable, WeWork has shown no promise that could put these people at ease. Growing revenues alone are not enough to fetch the company a sound investment especially when their operating expenses are leaking and their business model shows no signs of helping them.
Operating losses vs. Revenue
For almost every major company that has launched an IPO in the last few years, there has been stable or decreasing operational losses. Pinterest, for example, had eliminated its losses completely by the mid of 2018 while its revenue was rising at the same time. For WeWork, the losses are rising just as quickly as the revenues. The reports indicate that for every dollar the company makes, it spends almost two.
This pace is another thing that is keeping investors at bay. Although the company has raised almost $10 billion since its inception, people see no highlights that would make them think that their money would grow with WeWork.
The Influence of Competitors
Many experts believe that the biggest flaw in WeWork’s plan is the business model that they are following. Accommodation and workspace sharing ventures like Airbnb and Startupbnb own no real estate of their own. In turn, they make their revenues through commissions that they get from referring customers towards these spaces. WeWork owns and has to maintain almost 47 million ft2 of property which is eventually taking a toll on its operations.
WeWork is in the middle of huge dilemma and how the company will cope with it is still to be seen. However, one thing that is clear is that companies like Airbnb for living and Startupbnb for coworking spaces and co-living spaces hold the future to the market. The secret lies simply in their business plans where they form collaborations but own no physical properties that would drain their revenues exponentially.