The We Company's big reveal is finally here: After months of anticipation, the company more generally known as WeWork has released its updated S-1 prospectus in advance of a potential September IPO.
The We Company had previously made some results available to investors and the media, but the new prospectus released Wednesday paints the clearest picture yet of its current position and its future prospects.
As for the headline numbers, the company's revenue jumped 106% last year to $1.82 billion and has continued to grow briskly through 2019, rising 101% through the first half of the year to $1.54 billion. As expected, however, it is experiencing massive bottom-line losses. Last year, its net loss reached $1.93 billion, while in the first half of this year, it lost $905 million.
The We Company also offered plenty of juicy nuggets and valuable data for potential investors to pore over. Here are 11 points in particular that investors should be aware of before the office-sharing juggernaut's IPO hits.
1. "We are a community company"
The first line of its prospectus is: "We are a community company committed to maximum global impact." What distinguishes it from traditional commercial real estate firms as well as competing co-work spaces is that emphasis on fostering a sense of community, a goal which it pursues by hosting events and gatherings, and designing its workspaces in ways that encourage interactions and networking among participating companies and workers. Those opportunities for connection are a natural benefit of belonging to The We Company space.
It's always a good idea for investors to pay attention to the ways companies define themselves in these declarative documents. Snap notably called itself a "camera company," an odd choice that signaled to investors that the owner of the Snapchat app didn't see itself as a traditional social media business. With its emphasis on community, The We Company is essentially saying that it's a real-world social network.
2. It's a global operation
You may think of The We Company as dominant in major American cities but absent elsewhere. That isn't the case. Today, more than 50% of its members come from outside of the U.S., and the company operates in 29 countries. International markets are key to its growth, and part of its competitive advantage is its ability to offer global companies customizable office space around the world, which make opening a foreign office or expanding internationally a more seamless process.
3. The We Company is no fad
Chief among the criticisms of The We Company are that its business model is too easily replicable and that the company won't survive the next recession because many of its clients will go defunct.
Despite the occasional mockery from the press, The We Company is no fly-by-night business. The company now has 527,000 members, and 80% of them report that their productivity has increased since they joined up. In addition, 78% say that The We Company has helped them retain employees, and 65% said they believe that it has helped them accelerate their company's growth.
The We Company reported a high 119% net member retention rate last year, meaning that among the cohort of customers that were with the company at the end of 2017, total membership rose 19% in 2018, which shows that clients like the service and are expanding their use of it. 35% of new memberships also came from companies already using The We Company.
4. It's disrupting the commercial real estate space
This may go without saying as it's been clear since The We Company's inception in 2010 that the company has sought to disrupt the traditional commercial real estate market. However, it also took the curious step in its S-1 of specifically declaring that, "We are changing the way people work globally and, in the process, we have disrupted the largest asset class in the world -- real estate."
That's a confident statement, and one that's likely to perk up the ears of commercial real estate landlords who see the company's business model as a threat. At the same time, it offers evidence of the kind of growth opportunity The We Company sees in front of it.
5. It wants you to think of it as a cloud company
Management says the company pioneered the "space-as-a-service" model in commercial real estate -- indeed, the phrase "space-as-a-service" appears 40 times in the prospectus. The concept of (blank)-as-a-service, is borrowed from the cloud computing industry. Software-as-a-service providers, infrastructure-as-a-service companies, and other cloud businesses have had tremendous success, which has frequently resulted in ballooning share-price valuations.
While The We Company is not a tech company in the traditional sense, its model does have some parallels with those cloud-based operations. First, its service is scalable, allowing customers to easily and rapidly trade up or down to larger or smaller spaces according to their needs. While it needs to build out the office space first, in that respect, it's still not all that different from cloud companies, which need to write code and build software before offering it to customers. Second, it operates on a subscription basis, giving tenants month-to-month contracts, rather than the traditional multiyear leases that have been the standard in commercial real estate. That provides customers with more flexibility and works well for delivering profitability at scale, as the cost structure of a subscription business is relatively fixed.
6. The We Company is growing like a weed
The revenue growth numbers above make it clear that the business is expanding quickly, but that's not the only trend investors should be watching. Membership has doubled every year since 2014, and the company's revenue run-rate is rising quickly -- it's on track for $3.3 billion in revenue this year. Based on its trajectory and growth opportunities, WeWork could reach $10 billion in revenue or more in just two years.
7. Cannibalization is not a problem
Cannibalization is almost always a concern for brick-and-mortar businesses. Opening new locations too close to older ones can lead to some customers simply switching which one they patronize. That doesn't grow the overall customer base. If that happens, costs rise faster than sales, which hits the bottom line.
The We Company has a different take on this real estate conundrum. It believes that locating multiple spaces in close proximity to one another provides a beneficial "clustering" effect. "The more locations we strategically cluster in a given city, the larger and more dynamic our community becomes," it says. "This clustering effect leads to greater brand awareness for our offerings and allows us to realize economies of scale, which, in turn, drives stronger monetization of our global platform."
8. Corporations are embracing it
In its early days, The We Company largely catered to freelancers, start-ups, and small businesses. That's changed. Today, 38% of the company's 527,000 members come from the global Fortune 500, and large corporations are its fastest-growing customer segment. 40% of members now come from companies with more than 500 employees, up from 20% in 2017.
By providing a global base of office space to multinationals, as well as offering consulting services on those companies' own office remodels -- another fast-growing The We Company business -- this company may actually be better suited to serving the enterprise world than the start-ups it has historically been associated with.
9. Locations turn profitable quickly
According to a chart in its prospectus, The We Company's new locations reach their breakeven point, on average, within six months, and reach scale (or maturity) within 24 months. That would suggest that the company's sizable losses are due to its rapid growth rather than flaws in its business model. In other words, the company loses money on its new locations when they're in the build-out stages and in the first few months after they open, but those investments pay off fairly quickly as their occupancy rates move closer to capacity.
10. The opportunity is huge
The We Company estimates that its share of the global commercial real estate market is just 0.2%. It believes it's competing for a market of 149 million potential members, based on the number of desk workers in the 111 cities where it operates. The company plans to expand aggressively in those cities, and add up to 169 more cities to the list based on its market research, which showed that operating in 280 global cities was the optimal target for its business.
Those 280 cities will give it a potential member population of 255 million, and it estimates the addressable market opportunity in those cities to be $1.6 trillion. Factoring in the cost savings that The We Company can provide for traditional office tenants, the company says its total addressable market opportunity is $3 trillion.
11. It has several tailwinds
The We Company's business is primed to capitalize on a number of secular trends, both cultural and commercial.
Urbanization and globalization should support its business as companies become more globally interconnected and as the growth of cities creates a greater pool of potential members for The We Company. Similarly, the increasing popularity of working independently and remotely, which the internet and mobile technology have enabled, also plays to The We Company's strengths.
Finally, The We Company says that office workers today and the companies that employ them are looking for flexible office space solutions and a humanized workplace culture. In addition, people have a greater willingness to share space in this age of the sharing economy.
Investors can expect The We Company stock to begin trading under the ticker "WE" in the next month or two, though it has not yet said which exchange it will trade on. It has also not yet set a range for its IPO pricing -- that's likely to be revealed about two weeks before the debut when management begins the traditional "roadshow," during which they court institutional investors. It will likely set the final IPO price on the day before the stock begins trading.
In its last funding round in January, the company was valued at $47 billion, so investors should expect to see a valuation of at least that much when the IPO is priced.
The We Company no doubt will be one of the most controversial debuts in recent memory, as the company has already stirred intense debate. Whatever the pricing, investors should expect plenty of volatility from the stock in its first weeks on the market as investors seek out an equilibrium point for this unique company.