WeWork hasn't even gone public yet, but the start-up is already one of the most controversial companies out there.

Now valued at $47 billion, the 9-year-old office-sharing juggernaut has inspired plenty of skepticism about its valuation, as well as basic questions from investors like what the company actually does, and whether or not it's a tech company.

Though WeWork is growing rapidly (revenue jumped 113% to $728 million), its losses are also expanding. Adjusted EBITDA loss more than doubled in the quarter, to $220 million, and net loss, excluding an investment gain, rose from $274 million to $631 million. Both revenue and losses more than doubled in 2018 as well. Revenue reached $1.8 billion, but the company lost $1.9 billion. 

A WeWork office space

Image source: WeWork.

Concerns about hefty losses have sent stocks like Uber and Lyft falling since their debuts earlier this year, and threaten to spoil WeWork's IPO. However, WeWork is a fundamentally different business from Uber, Lyft, and Airbnb (which could also initiate an IPO this year), and shouldn't be grouped together with them.

A closer look at the company's fundamentals and its long-term opportunity shows that it could be the big winner in this year's IPO class if or when WeWork actually goes public. Here are three reasons:

1. The unit-level economics are solid

Though WeWork is putting up massive losses, those losses are due more to its rapid expansion rather than to problems with the fundamental business model. WeWork says individual locations are profitable once they are leased, and that the company would be profitable today if it stopped expanding. 

It's expensive to sign new leases, renovate spaces, and recruit new clients, and the company loses money as it fills its new locations. WeWork finished last year with an 80% occupancy rate, down from 84% a year ago, as it accelerated its expansion. Its average revenue per member was $6,360, though that was also down from prior years. 

Critics have charged that WeWork is little more than a lease arbitrage business -- it leases office space, divides it up, and then subleases it to tenants to turn a profit. The problem with that model, they say, is that it tends to fare poorly in recessions. WeWork CEO Adam Neumann has responded to this concern by saying that WeWork locations in countries like Argentina and China have already been subjected to economic slowdowns and have still performed well. He also said that WeWork locations are 50% to 70% cheaper than competing office space, making it an attractive proposition in a recession, when businesses would be looking to trim real estate costs. 

2. It's more than a co-working space 

While co-working is the easiest way to describe WeWork, it's much more than that. Neumann and his management team see the company's goal as fostering community above all else. In other words, WeWork provides significant value to its tenants beyond just a place to work. It hosts networking events, helping its members share ideas, market their products, and even team up together. There are also workshops, happy hours, and entertainment events like live comedy. 

The vibe and design of a WeWork space is pretty much the polar opposite of a traditional drab office of gray cubicles, typified by movies like Office Space. WeWorks look something like a boutique hotel and feel like a cross between an office and a place to hang out. There's free coffee, fruit water, and beer, free food on occasion, and games like ping pong, foosball, and billiards. Music plays in the common area, and you can bring your pet to work with you in some locations. Its private office spaces have transparent walls, helping to create a sense of openness. 

It may sound like the amenities WeWork offers are targeted at younger people, but they appear to be catching the attention of members (now totaling nearly half a million), who seem to develop a fondness for the space. Here's a sampling of reviews on Yelp

  • "Totally in LOVE with WeWork as a company and this particular location is where it all started for them. I love the vibe, the conference spaces are great sizes and always clean, the businesses through-out this space are friendly and courteous." -- Thomas G.
  • "From the moment I walked up to the building I fell in love. This space is gorgeous with ample space, large windows and amazing detail." -- Joann R.
  • "Love being a part of this WeWork community. Warm vibes, people working on hard on interesting ventures, nice food vendors. I come to the building on the weekends as well just because I find the work environment so nice here." -- Peter R. 

Though some critics have dismissed WeWork as a millennial fad and questioned its business model, the bottom line is that the company is good at what it does and provides a much-appreciated service.

3. The long-term opportunity is huge

The global commercial real estate market is worth an estimated $6.1 trillion, and WeWork has tapped only a tiny portion of the addressable market. 

Not every business is going to be right for a WeWork, of course, but the company is already expanding on its original concept by attracting more corporate tenants. Its enterprise business, which is made up of companies with more than 1,000 employees, now makes up 32% of its total membership, up from 23% the year before. That segment is particularly valuable as those clients have longer leases, generally between three and five years, which has given the company a committed backlog of $2 billion in revenue. Among WeWork's corporate clients are IBMsalesforce.comMicrosoft, Airbnb, and Facebook.  

Beyond that, WeWork has begun taking its services to corporate offices under a business it calls Powered by We. For example, the company recently remodeled a UBS office for 4,400 people in Weehawken, New Jersey. As WeWork's brand awareness and engagement grow and the company gathers more data, businesses like Powered by We should benefit from a natural flywheel effect, allowing growth without a need to sign more property agreements.

There remains substantial optionality for the company as WeWork has also launched residences under the WeLive brand and a school called WeGrow, part of the company's vision to extend its community brand. In fact, WeWork has named the umbrella organization the We Company, though WeWork remains the key business, and will for the foreseeable future.

With its skyrocketing growth rate, strong brand value, and a huge addressable market, WeWork has truly disruptive potential. 

It may be a fair question whether the company deserves its $47 billion valuation today, especially when we have yet to get a closer look at its financials, but it's a mistake to underestimate WeWork's potential.