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The We Company S-1 (sec.gov)
329 points by dawhizkid 3 days ago | hide | past | web | favorite | 325 comments





My favorite part of new tech company filings is looking at the risk section and finding something to the effect of: "We are not profitable, and may never be."

> We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future.

I understand the reasoning behind having these in the document, but I always get a kick out of seeing it said so plainly.


It's not a tech company, it's a property company with the valuation of a tech company.

It's a property company that's planning tracking everything people do in their buildings.

>WeWork's latest acquisition is a small software company with 24 employees. Euclid is a spatial analytics platform...Euclid's website says the company is "focused on redefining the workplace experience of the future." Translation: optimizing every aspect of the physical workplace so workers are their most productive. Euclid does this by tracking how people move around physical spaces. Its technology can track how many people showed up to a meeting or to that after-work happy hour. The company can see where employees tend to congregate and for how long. It's all done over Wi-Fi.

Edit - forgot to link the article - https://www.inc.com/betsy-mikel/wework-is-trying-a-creepy-ne...


Yeah, I don't see that providing the outsized gains they're hoping for. I've talked to a number of entrepreneurs who business plan is basically

    1. Collect data
    2. ???
    3. Profit
And every time I quiz them on point 2, they get squirrely. They can never explain exactly how it works; at best I get hazy references to Google making lots from data, which is at best a partial truth.

In this case, I doubt having that data will do much; humans are already natural optimizers. Really, the things workplaces should be optimized for are unlikely to be easily measurable, so at best these systems will optimize for the wrong thing.

And really, the reason workplaces aren't particularly optimal now is that most decisions are made not for maximizing business value, but for maximizing the power and comfort of those high up. As an example, when businesses relocate their headquarters, it is generally to move closer to the CEO's home. Or we can look at all the decisions made to optimize a visible metric, like cost, to the harm of invisible ones. E.g., the open office plan, which is cheap and lets managers supervise by looking out their office window, but significantly harms productivity and employee happiness.


> And every time I quiz them on point 2, they get squirrely.

Well, sure, but all they're being told is that data is the new gold. [0] And gold is valuable, so data must also be valuable. They tend to forget that not all data is gold, because 'some data is gold' isn't what they were told and also isn't fun.

0: https://www2.deloitte.com/nl/nl/pages/data-analytics/article...


> humans are already natural optimizers

This right here. Most humans will do whatever they can to achieve minimal work. However, they aren't great at gathering all the necessary data and often find local maxima, so there is still some value in "AI augmentation".


Yeah, I don't think tracking this type of data would improve worker productivity, and I think it could actually have the opposite effect of demoralizing employees.

However, I can definitely see some unethical companies being interested in this type of tracking, so I'm guessing there's a market for it.


I'm sitting in a very similar situation.The company I work for provides relatively basic service, however the operational( we are brokers) model is challenging. We have tons of reports and dashboards measuring things from A to Z, sometimes it feels like we are some sort of analytics company. While some metrics are useful and help steer the ship either way,the rest simply becomes noise. Also a lot of data is not being interpreted correctly because of lack of statistics/math skills within the company.

Always great to run into your comment on HN

Did Euclid / WeWork realise that many people prefer to work from home? My past 14 years of professional experience would net WeWork 0 rental income.

I'm part of an almost entirely remote company, where the headquarters is stationed in a coworking space. If the company offered a WeWork membership for us remote-workers, I'd occasionally like to visit the space for the atmosphere of working around other working people and the conveient coffee, booze, and views.

But as it stands WeWork is far too expensive for me to justify paying out of pocket for considering how noisy the shared areas are compared to any of the cafes down the block from my home, where I can get the same work done in a similar environment for a fraction of the daily cost.


Don't rent in some hipster corner,where you'd have 9/10 doing anything but work.Find a slightly run down office space and get a desk or a tiny room there. I've been to so many non A+ office buildings and most of them are dead quiet because most tenants in such buildings have to work their asses off to make living because they don't operate in high margin,low competition markets.

Sure- and if they report which employees attend meetings and who spend more time at the water cooler, their rent and valuation will go up. That is some serious stretching of possible ways to make money

They're trying to sell it as tech

> We have approximately 1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business


To do what? I'm not too familiar with them but what more do they have other than a website to look at potential spaces with some photos and a description and sign up for one? Maybe process payments as well?

The biggest tech challenge they have is figuring out how many conferences rooms to build out per X number of offices.

Not enough, and you have a huge queue to use them, too many and you have lost office space rental.

Outside of that there isn't much tech to go around.

We used them before they were WeWork, when they were still GreenDesk in Dumbo.

Overall it was great, and it's a great product given the flexibility and move in ready amenities that it provides and if you ever step foot inside of Regus you will immediately notice the difference.

Though now there is a lot of competition from smaller companies and of course I'm sure Regus has stepped up their game in response.

Their growth is amazing, but ultimately it's still a real estate holding company. The same is true for E-commerce. Though their volume is immense, they trade no where near their multiples for revenue as other tech companies given the different margins they have, cyclical sales cycles, and many other factors that make that sector much less attractive than a pure software play in the B2B space.

But looks like we will see how this all plays out.

Really the exposure that Softbank has here is the real worrying issue. It's a massive stake, at a massive valuation, and if this IPO doesn't perform well (and most people think it won't), this maybe a real red blot on their performance.


> The biggest tech challenge they have is figuring out how many conferences rooms to build out per X number of offices.

How is that a tech challenge?

The only actual tech they have is their swipe card access and room/desk booking systems

They might use some tech internally to optimise certain aspects of their business, but that would be like calling a coffee shop that does their finances in Excel a tech company


> calling a coffee shop that does their finances in Excel a tech company

Techbucks S-1 coming soon!


>The biggest tech challenge they have is figuring out how many conferences rooms to build out per X number of offices.

Saving the world!

>Overall it was great, and it's a great product

Yes, much like Uber, Lyft, Tesla, Blue Apron and on and on, consumers love products priced far below their actual costs.


I'll see if I can dig up the article, but I think they're planning on tracking everything that workers do in their buildings and giving that data to employers.

Edit - found this - https://www.inc.com/betsy-mikel/wework-is-trying-a-creepy-ne...

>WeWork's latest acquisition is a small software company with 24 employees. Euclid is a spatial analytics platform...Euclid's website says the company is "focused on redefining the workplace experience of the future." Translation: optimizing every aspect of the physical workplace so workers are their most productive. Euclid does this by tracking how people move around physical spaces. Its technology can track how many people showed up to a meeting or to that after-work happy hour. The company can see where employees tend to congregate and for how long. It's all done over Wi-Fi.


There are a couple of issues with this. It's a well-known effect in management theory that workers behave differently when they know they're being observed. Also, presumably most of their tenants employ knowledge workers not factory floor workers, and so data about how often they go to the bathroom or how many steps they take in an hour is probably a lot less relevant than tracking what they're doing on their computers.

I can just imagine a bunch of managers attempting to "optimize" their employees once given the power to do so!

"Jane, I noticed you don't stay late after work, why is that?" "Mike, I see you sometimes go off company's wifi, why is that?"


Yeah, I don't think this is an effective way to improve worker productivity, and I think it would also be pretty demoralizing.

With that said, there's already companies that track workers like this, so I definitely think there's a market for it.


Measuring every single second of how it gets spent- That's idiotic. Knowing that everything you do can be easily checked and measured- sometimes it works miracles.

Helpdesk software and room booking. But yeah _1000_ people in product development sounds absurd for "We".

Especially at their scale. A team of 20 could run a Facebook-like experience for 1 million people. Things get much harder after that, but Wework isn't close to the scale where you need more people because things are harder.

One would think that if you have that much invested in engineering business operations that, ya know, your business operations would be profitable. This is the gamble and is based on a volume play, since technology that enables business operations can have tailwind effects.

Its a property management company. They own some leases, but not actual buildings.

Is it? I was under the impression it does not own land for the most part.

It's a mix. Some locations they own, some they lease--including some that the CEO owns and they lease from him, which is an interesting arrangement.

> including some that the CEO owns and they lease from him

Did you see the part of the filing where, in case of death or incapacitation in the next ten years where the CEO is unable to fulfill his duties, a group of two board members _and_ his wife will select the next CEO, and if those named board members are also not available anymore then his wife will solely pick the two board members who will pick the next CEO with her, and if _she_ is unavailable then the estate of the CEO and his wife will pick the next CEO?

Page 198

I've never seen a company like this transfer to successive control via the private estate of the CEO in case of a vacancy. There's a lot of WTFs in here.


A school I attended once had a similar arrangement with one of its board members. I also vaguely recall that board member defrauding the school of several million dollars and being federally charged...

It's different for a school though because there are regulations on related party transactions for nonprofits.

Under "Properties Leased to The We Company," this is very interesting:

"As of June 30, 2019, future undiscounted minimum lease payments under these leases were approximately $236.6 million, which represents 0.5% of the Company’s total lease commitments as of June 30, 2019."


How is that going to fly with a public company?

Page 28 discusses it. They have an interesting approach to managing the conflict:

> Pursuant to our related party transactions policy, all additional material related party transactions that we enter into require either (i) the unanimous consent of our audit committee or (ii) the approval of a majority of the members of our board of directors.

I was pretty impressed when I read "unanimous consent of our audit committee" but then it all went out the window when I saw or the majority of the Board. The company CEO/landlord is the person with the major conflict of interest. He also has the majority voting power of the company stock and will control the board. WeWork's attempt to mitigate this conflict of interest is nothing but smoke and mirrors.


That board position is the key problem. The conflict of interest isn't addressed at all.

As long as the lease rates are inline with the market rates, shouldn't be an issue.

For actually useful comparisons, look at Regus/IWG which is larger and more profitable: https://en.m.wikipedia.org/wiki/IWG_plc

I have used Regus on and off in the US for a decade. I also have a free WeWork subscription through my AMEX platinum (boosting numbers pre-IPO?).

Regus is actually better run and more comfortable...just doesn't have the millenial loft vibe. I think that vibe is costing them too much for a real estate play!


See I always thought WeWork's issues were location related, that the real estate costs were just so massive. Just look at their NYC locations, they have the entirety of the top floor of the Fulton st station, it's gorgeous but seemingly very expensive to rent, I'm sure the crazy busy small Shake Shack downstairs makes a month's worth of the (Upstairs) WeWork's payments every week. But you're right, the other more enclosed locations (like 85 broad) are more comfortable too.

I would also agree with you. They seem to have a focus on some top tier locations for their brand. IWG/Regus is not nearly so fancy...but they do have more locations, more suburban coverage, and usually in typical office parks. Which, FWIW, probably benefits a more money-ready segment of the population...middle class, middle aged, professional class.

Woah, didn't realize Amex had that benefit. Looks like I'm signing up!

Looks to be business Amex Plat only for 1 year of free WeWork.

“You know... like Amazon. We’re basically the next amazon. Want to miss out on that?”

I wonder how that compares to what they tell new hires who are likely taking a haircut for equity in the company

They probably tell the new hires the same thing they tell themselves:

* It's always a gamble, but if you'd received $x0,000 of options 3 years ago, they'd be worth $x00,000 now.

* You'll own 0.00x% of the company, and if you owned that much of Facebook you'd be a multimillionaire.

* Companies like Amazon don't make a profit, and the stock market is fine with it. They know Bezos could turn a profit if he wanted to, but he's putting all the money to work growing the business.

* A company's IPO price isn't its all-time peak price; Google's stock increased 9x from their IPO price.

You'll note that, if you look carefully, nowhere in those points did I promise WeWork options would ever be worth anything.


Doesn’t deter from your point at all. But Google’s stock has increased over 27x since IPO 15 years ago.

"We have free lunch, a ping-pong table and a VR room with monthly fitness days"

Actually they don't have free lunch, which is quite strange for Silicon Valley companies

They (We) does have mandatory enforced veganism, however.

https://www.bloomberg.com/news/articles/2018-07-13/wework-te...


Actually it's pescatarianism, for whatever reason seafood doesn't count as meat.

Maybe it's because fish don't scream when you stab them, but idk.

Yeah, that's just horrible. We're emptying the oceans at an alarming rate. If they want to do it right, they shouldn't allow fish either.

Fish can't scream.

The Bloomberg article preview describes enforced vegetarianism, not veganism.

They are an NYC (does anyone still call it Silicon Alley?) company.

Mostly we're trying to get SF to rebrand as New New York.

Old Silicon Valley (companies primarily engaged in the design and production of silicon) doesn't do free lunch.

Neither does Apple.

We all know there is no such thing as a free lunch.

(In seriousness, it is neither a Silicon Valley company nor a tech company. All it has in common is that it is using VC funding and SV-style brand marketing to grow to spectacular proportions relative to its underlying revenues)


Profitability and the value of the equity aren't necessarily related, though. Amazon was unprofitable for many years, but its stock still increased in value.

Thats because Amazon was only unprofitable due to Capex and R&D. Their operating margin is fantastic, it was this promise that enticed investors! WeWork on the other hand is very ugly.

This is what seems to not be understood by a lot of investors and people commenting on investments. Amazon could have turned a profit years earlier if they wanted to. Instead it made more sense to continue spending all of their money on expansion and R&D.

It's the same with Tesla. They are selling a shit ton of cars at good markup. If they wanted a profit, they could have one. They just don't want one right now.


Tesla can't achieve profit even after extreme cuts across the board, including capex. Their capex minus D&A has been declining for a while and is negative.

https://twitter.com/TESLAcharts/status/1123186053811032064?s...


Is a tweet tagged with `$TSLAQ` really a good source?

>It's the same with Tesla.

Can you show you get this from? I see it repeated on these boards, ad nauseum, that Tesla is spending their "profits" on R&D and building infrastructure.

But in reality, you can see from their financial statements that Tesla's CAPEX spending is embarrassingly small for an auto company, and shrinking. They spent $2BB in 2018 and are on pace to spend half that in 2019. As a sibling comments states, their spending doesn't even cover depreciation of assets. For comparison, Ford spent almost $10BB on CAPEX last year, GM spent $10.8BB, VW spent over $12BB.

>If they wanted a profit, they could have one. They just don't want one right now.

You can't honestly believe this, can you? What are they waiting for? Why do they keep raising funds? Where is the money going?


Exactly. This was true of Tesla back when they made only the S & X and blew their R&D dollars on Model 3/AP/Batteries but the Model 3's margins are incredibly bad with sky-high ops costs while they are digging a hole like a car stuck in mud. They are promising FSD (to paid customers), Semi & Roadster (To reserved customers), and a Model Y that will surely eat into Model X sales, meanwhile they are clearly reducing spend in these departments. Without a Model S/X Refresh (That Elon is repeatedly saying will never ever happen) or dramatic reduction in BOM / assembly (which, maybe the Model Y is supposed to bring? maybe? Pigs can fly?) There is no route to profitability.

I agree, but want to emphasize that it's not necessarily sinister: they simply have no money to do the things they've promised. That's best case. Worst case is sinister.

I agree, for the most part, FSD seems simply outlandish and by this point they already had promised coast-to-coast. There really wasn't any real path to their promises.

It’s B not BB.

Thanks. Bad habit to hammer that key twice.

Yeah, no. There's a fundamental difference between Tesla and Amazon in terms of their profit potential. Super misleading to say that Tesla 'just doesn't want to profit rn'

Not understanding is one option; not trusting is another.

It is presumably quite easy to shuffle operating expenses into the earnings report as capital expenses if a company really wants to, and the 'development' in R&D can hide a bunch of things.

I'm happy to be wrong, but 'Oh, they can make money the minute they choose to, but at the moment they are choosing not to' is a concerning argument. Apple might have gone from "give the money back to shareholders" -> most profitable company in the world -> broke by the time Amazon turns a serious profit for its shareholders. It is yet to be disproven beyond all doubt that Amazon is competitive by virtue of having abysmal profit margins.


Huh? Clearly you are clueless about Tesla's financials.

Tesla's gross margin is a piddly 18%. They also need money to build and maintain service centers, super charger networks (all needed because Tesla doesn't have a dealer network or a gas network).

Then there is debt servicing, working capital, maintaining their plants, inflationary effects of labor wage (as their labor pool gain experience). All these are not discretionary R&D.

Tesla is fundamentally unprofitable and Musk suddenly has realized this and hence the major pivot to FSD (which is about 15 years away)


No, it's not. Not at all. Cash flow for each of the companies is VERY different.

TESLA:

https://www.marketwatch.com/investing/stock/tsla/financials/...

Amazon:

https://www.marketwatch.com/investing/stock/amzn/financials/...


Tesla differs because they no-longer make reasonable profits on the Model 3 and the better build and more cohesive design of the 3 has eaten the S & X sales.

The retail margins are about the same as walmart. They don't have some magic sauce in selling things.

AWS is their real money maker.


It's a bit harder to see from the present, but the magic sauce they added 25 years ago was selling things on the Internet. Obvious today, and obvious in hindsight, but the road to here is littered with companies that tried the same but didn't make it.

Aws was a blip on the rader for years when amazon was still one of the richest companies.

Look at their retained earnings on the balance sheet. It really only started going up when aws started getting more popular. Amazon always had an insane valuation.

Walmart is a good comparison. Amazon is in the volume game just like them.

Very true which is why they focused on free cashflow as a measure of profitability which could be immediately realized if they stopped investing their profits in to growth and market domination.

Though, certainly AWS has been a massive benefit for them. Allowing them to truly be disruptive and industry leading while generating massive revenues, growth, and most importantly profitability, however small compared to their overall revenue, to continue to justify their pitch.


Note that capex is capitalized and amortized over time (it doesn’t affect profitability when the investment is made).

It's almost as if the IPO market has become a ponzi scheme.

Maybe so, but please don't post unsubstantive comments to HN.

WeWork has $33.9 Billion in Non-canceable lease commitments, and it's lease payments are increasing 100% YoY. I think that is the true ticking time bomb for this company. In a world where billion dollar losses (Uber) seems somewhat normal, those lease obligations are still outrageous, and those payments will come due eventually, whether they have the money or not. In 2019 they attributed over $800 Million to operating lease costs. Every year, based on static growth that will double, and my bet is that it may even more than double in some cases. This isn't so much a company as it is a race to light cash on fire and run away.

Seems like they are pretty much levered to the hilt. What happens when the current bubble bursts (or even just deflates) and their occupancy rate declines?

Their business model seems to be selling short term leases and buying long term leases. This is all fine and dandy as long as they can find enough buyers for the short term commitments, but the distribution of almost all such strategies tends to be heavily tailed. You basically collect a small but consistent margin and occasionally suffer heavy and unavoidable losses.

That's a perfectly fine strategy if the company can stay solvent during the loss, but this seems far from certain in case of WeWork.


Extremely levered indeed. I imagine that they will reduce the lease terms from the current average of 15 years when occupancy rates tighten. At that point they have a different problem, their margin difference between their lease payments and their lease revenue (minus the perks, furnishing office spaces) will come down. All said and done, had they been valued at say ~$10B, this would have been still a high risk play but at least the multiple is not so exorbitant. I don't get what Masa saw in this to value them at $47B, there must be something. Isn't he super smart???

> Seems like they are pretty much levered to the hilt. What happens when the current bubble bursts (or even just deflates) and their occupancy rate declines?

Convert the We Work spaces into homeless shelters = profit from Government contracts.


in a recession, is short term, flexible office space more or less desirable?

It's important to distinguish between the general form of leased small office space and the WeWork model. In a recession, I feel it's pretty likely companies would look at their expense numbers and decide that WeWork is way too expensive in comparison to options like Regis, work from home, or just eliminating workers outside the main office.

Wouldn't anyone spending money on that just cheap out and go with a library or cafe or home-office to save money? Sure, not working at home is great for productivity for some people, but when push comes to shove, their customers can largely move elsewhere, right?

Maybe if you work alone. But there are plenty of corporate customers of WeWork who will never, ever tell their employees to "work out of a cafe".

The problem of course is that not all customers are big corporates - some are small firms that will scale back spending, or even close, if a recession hits.


> short term, flexible office space more

This is more appealing to businesses who don't want large capital expenditures, which could or could not be related to a recession. It's more related to market trends and access to a lot of cheap capital.


Less. Small businesses die like flies in a recession

Even worse, WeWork doesn't generate that much more revenue from tenants than it spends servicing its enormous lease obligations. They admit in the risks section that a significant portion of their members are small and medium sized businesses/freelancers who may be negatively affected by economic downturn. Their average lease duration is 15(!) years, and most do not have early termination provisions.

Oof.


They don't have early termination provisions!?? That better have come at a steep discount for WeWork to take such a risk.

Does the S-1 disclose the fact that the founder is also one of the company’s biggest business partners? He buys up properties and then leases them to WeWork. Seems like a red flag to me.

Yes, under "related party transactions": https://www.sec.gov/Archives/edgar/data/1533523/000119312519...

"We are party to lease agreements for four commercial properties with landlord entities in which Adam has an ownership interest..."


> Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator...

Is this a normal sort of thing to see in such a filing? He's being referred to by his first name and heaped with praise.


Adam is extraordinarily humble. Everyone, including Adam, would never exaggerate.

Adam is a part of everything. He is in the sky and sea. He is in the dreams of children at night. He is all that there is, forever.


Adam is the Alpha and the Omega, the Beginning and the End. Those who invest will inherit all this, and Adam will be their God and they will be his children. But the cowardly, the unbelieving, the shorts -- they will be consigned to the fiery lake of burning sulphur. This is the second death.

Adam's rise signals the start of the Apocalypse. Even his name is an affront, and a sardonic reference to the Alpha (Book of Genesis) and Omega (We).

He is We.

Adam can do anything... the only limit... is himself.

http://zombo.com/ is still alive and ... in Flash.

It’s not normal, and neither is WeWork, nor Adam himself. There’s something of a cult around him: https://news.ycombinator.com/item?id=20149800

Isn’t “related party transactions” where Enron’s CFO hid most of their funny accounting to companies he controlled and profited from?

Seems like a good place to put it then. S1 readers know to look here.

Then cashes out another $700m of investors cash pre-IPO probably to buy more properties, to lease back again...genius.

But yeah, red flag a mile wide.


I agree with your larger point that his dealings are a huge red flag, but just to clarify, a bunch of that money was borrowing against his existing stock rather than actually selling to investors, which is quite different. Selling can imply a lack of confidence in future value, while borrowing against the stock implies some level of confidence.

When I was in financial trading, I think that's what we called a "Texas hedge".

(A hedge being where you take some of your money and buy protection against downside risk. For example, since I'm in tech, it's in my interest to sell some of my company stock and buy something that is uncorrelated with tech. That way if my company blows up, I won't be totally broke. The Texas hedge is doing the opposite, so that you're even more screwed if the bet doesn't go your way.)

This could indicate confidence, but it could also indicate a double-or-nothing mentality. You can only be so bankrupt, after all.


The majority of businesses I have worked for, the company leases the building from another company owned by the founders.

This is to protect the buildings from liability through issues with workers. You don't want to be sued by a worker for something and have the buildings on the table.

It’s also due to being able to take advantage of lower taxes on capital gains, which you can have if you structure the real estate part of the business to have income from “passive activity” versus “business activity”.

https://www.irs.gov/businesses/small-businesses-self-employe...


Would note it financially secures the founders as well.

Even if the company removes the founders they're going to be getting that lease payment forever.


doesnt that sound like laundering?

Not really, it sounds like a rainy day fund - a business may be out of business (or out of the building) within ten years, but the building will be around for at least another fifty, retain its value, and provide constant income.

The laundering aspect may have a grain of truth in a way though; instead of having e.g. an investment or sale paid out (and consequently taxed), it's rerouted into buying a building. Why pay I dunno, 50% income tax to get the money right now instead of reinvesting the money and long-term earning a lot more?


For the CEO

This is a massive conflict of interest. It's been well publicized. But it seems wall Street doesn't care.

The JOBS act seems to get them out of some of that disclosure. On page 126: The JOBS act entitles them to "reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis"

Why don't you read it and find out?

Because I just got fifty other smarter and better educated people to do it for me.

This is pretty much how McDonalds controls its franchisees and in fact makes money. While I agree in this case "The We Company" should actually be holding the buildings (as it's a workspace holding company), it's a good way to ensure limited liability to the company and allow the founder to exert control (not saying it's a good thing for share holders).

> We will be treated as an “emerging growth company” pursuant to the JOBS Act for certain purposes until the earlier of the date we complete this offering and December 31, 2019.

> These exemptions include ... reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis

I hadn't noticed this in recent big tech IPOs so I looked it up (Rule 12b-2):

> The term emerging growth company means an issuer that had total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year.

So they claim to have had under $1.07B of gross revenue in 2018, but they list $1.8B in revenue on page 21.

> We ceased to be an emerging growth company as defined in the JOBS Act on December 31, 2018. However, because we ceased to be an emerging growth company after we confidentially submitted our registration statement related to this offering to the SEC, we will be treated as an emerging growth company for certain purposes until the earlier of the date on which we complete this offering and December 31, 2019.

So they started the process before EOY 2018 where they knew they'd have $1B, so as to avoid disclosure until they are public. Sneaky!

Slack did the same thing, and had $1.05B in revenue for the previous tax-year when they registered (and $2.2B for 2018). I guess this is a convenient goalpost.

> Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.

To claim run-rate revenue like this feels imaginary and misleading.


Revenue is one thing, net income is a whole another.

I’m really disgusted by how much recent tech IPOs inject pitch deck-style garbage into the S-1 filing, especially this one. I’ve always had a great amount of respect for the mediating nature of the S-1’s dry, candid, and ruthlessly honest assessment of business risks, and even though those things are still there, they’re blown out by marketing photos, full-page charts, and branding.

This is basically like putting perfume on a term paper. Regulators could do well to clamp down on this sort of activity, especially with the S-1’s reputation as a means to truly inform investors.


WeWork's litigation counsel might have wanted the pitch-deck stuff to go into the S-1 to make the information more understandable to non-business people. That way, the pitch deck would be an official part of the record; in turn, this would mean a couple of things:

1. If disgruntled investors were to sue WeWork, the pitch-deck material could be referred to by WeWork's counsel in tactical maneuvering such as a motion for judgment on the pleadings, without having to jump through all the hoops that might otherwise be required;

2. Worst case, if a lawsuit ended up going all the way to a jury trial, the pitch-deck material presumably would be sent back into the jury room as a "real" exhibit, allowing the jury to review the pitch-deck material during deliberations. (The jurors might even be given individual notebooks with copies.) In contrast, if the pitch deck were left out of the S-1, the judge might or might not allow it to go back into the jury room, especially if it were a so-called demonstrative exhibit prepared for the litigation.

(I teach my contract-drafting students to draft agreements with an eye toward being readable by judges and jurors, with tables, footnotes, non-legalese language etc. — and if the contract language is understandable to a juror, then the parties' business people will be able to get to signature more quickly and are less likely to get into disputes afterwards.)


As a jury consultant who's worked on a lot of securities and M&A-gone-wrong litigation, I don't understand why you think it would be beneficial for pitch deck stuff to go into a disclosure. If I were a defendant accused of making misrepresentations, I'd most likely want the pitch deck kept out. "Pitch deck stuff" is aspirational, to put it charitably. A defendant would ideally want to take the opposite position-- that it made only bullshit-free, clear-eyed representations about upside prospects and downside risk.

Also, I totally disagree about the evidentiary issue and would venture to say you're wrong. First of all, the idea that you'd need to cram a pitch deck into a filing in order to get it into evidence is downright silly. A defendant could easily get it into evidence through a fact witness or PMQ. Second, and more importantly, you wouldn't want to do it in anticipation of litigation because you'd lose any control you might otherwise have had over its admissibility (a filing like that would be pretty much guaranteed to come into evidence). Third, and relatedly, you wouldn't want to do it because, pursuant to my second point, it's then going to come into evidence in all of your cases. As they say, the record is forever.


> As a jury consultant who's worked on a lot of securities and M&A-gone-wrong litigation

Plaintiff- or defense side?

> If I were a defendant accused of making misrepresentations, I'd most likely want the pitch deck kept out.

That's never gonna happen (keeping it out), so good defense counsel will grasp the nettle and get out in front of the issue.

Also (something I didn't mention before but should have): There's a jury-psychology benefit to being able to say, in effect, we submitted all this to the SEC, and they approved the registration. It's analogous to why patent applicants are well-advised to tell the USPTO about all the prior art that they know of — so that at trial, the patent owner's trial counsel can respond to the infringer's counsel with, yeah, we know about that prior art, because WE TOLD THE EXAMINER about it, and s/he issued the patent, so who ya gonna believe — this infringer's BS argument, or the government expert who was tasked by law with issuing only valid patents? That helps fend off infringers' invalidity challenges.

> "Pitch deck stuff" is aspirational, to put it charitably.

I perused the S-1; at first glance, that pitch-deck stuff is exactly what I imagine WeWork's litigation counsel might affirmatively want the judge, the judge's law clerk, and/or the jury to see — and, at trial, for an expert witness to be able to use as a visual aid in explaining the value proposition to the jury. (I've never done securities litigation, but I used to do IP litigation for complex technologies, where similar principles apply.)

> A defendant could easily get it into evidence through a fact witness or PMQ.

True, but again, it's always nice to be able to point out to the judge/law clerk/jury that this is what was disclosed to the SEC, and that the SEC approved the registration. Sure, legally that fact has very little weight; psychologically, though, it can't hurt and it costs essentially nothing. (You do have to make sure it's factually unchallengeable, but top-flight securities counsel will do their best to achieve that anyway.)


> Plaintiff- or defense side?

On the whole I do more defense work, but plenty of both. For securities, more often defense. For M&A gone wrong, more often plaintiff.

I take your point about getting out ahead of the issue, but I'm not convinced that it's as powerful an argument as you think it would be, and I think it introduces other risks. Since you're familiar with IP litigation, you're no doubt aware that patents get invalidated by juries all the time in trials where plaintiff counsel makes that argument.


Yeah, except that's not how this works outside the theoretical realm.

In practice, those that actually took companies public know that the more terrible crap you throw into the S-1 ( pitch deck included ) as long as you state that risk-wise you are probably a terrible investment for the public, the better protected you are from the lawsuits in the future when the public's investment does not pan out: you say 'we are doing X and this is our rosy pie in the sky pitch deck, but we must tell you the risk is that none of this is helping us to make money. Buyer beware'

Should one look at the S-1s of the tech companies that went public in last 4-5 years one would see that pattern

Source: Attorneys engaged by the investment banks to help companies to IPO.


Personally I prefer the dry version of SEC fillings. More to the point and with less marketing and PR crap. Also shows you that the finance department is filled with dry professionals, and as much as these finance people can be a pain less professional ones are real curse especially if form matters more than function. Like at my current gig which apparently won an award for their annual reports, the report mind you and not the reported figures. I tried reading it, if you ask me at least 75% are fluff and of the reminder a lot is just lacking substance.

This is also true. Back when I was drafting my then-company's Form 10-K annual reports, for just that reason I loaded up the risk section with a list of all the things that could go wrong, based on studying similar lists from the big software companies. It's sometimes known as vaccination or inoculation — "hey, we told you all these things that could make our stock price go south!"

(The danger with this approach, of course, is that if you inadvertently leave something out, the plaintiffs' lawyers will spotlight the omission and argue, "they LIED!")


Your actions are reason, why this (yours incl) sections are useless from investor perspective.

Take for example a risk from We Work company S1: > the sustainability of our rapid growth and our ability to manage our growth effectively;

translation: getting older may cause you die.

in other words: dont put your cat to microwave, and beware as your tea might be hot in your cup.


It's all about the incentives.

Should we just interpret these filings as CYA measures, or do they show the company preparing for an ugly legal battle with investors? Is it possible to tell the difference?

It can also serve as a major red flag, when a company adds in a bunch of unnecessary things while excluding things that aren’t required, but are critical, to valuations such as churn rates.

This was a big one in Uber’s filings where it looked like they were probably mixing in Uber Eats to hide flat or declining usage of the actual ride sharing service. Public companies changing how something has been historically reported also raises similar questions. Report the metrics that look amazing, exclude, merge, or mask the stuff that looks bad.


Or pull a Groupon and just completely redefine several accounting concepts, e.g. list marketing costs as capital expenditures.

I don't get that one. How are they justifying placing marketing as Capex instead of Opex? What is the advantage? Are they saying marketing is a depreciating asset?

IIRC, their argument is that marketing builds brand awareness, and brand awareness is a capital good.

> they’re blown out by marketing photos, full-page charts, and branding

Companies get a lot of latitude with the first few pages. Seasoned S-1 skimmers peruse that stuff, but save the digging in for the risk factors, financials and the accompanying notes.


Lmao, pages 157-160 are straight up magazine-esq full page adds for other companies (SalesForce, DropBox, etc)

147-150

Nit, peruse means to read carefully with an attention to detail.

"Peruse can mean 'to read something in a relaxed way, or skim' and can also mean 'to read something carefully or in detail.' Peruse is thus a contronym because it has multiple definitions that seem contradict each other."

https://www.merriam-webster.com/words-at-play/peruse-usage


Yes I realized this, but this makes the word unnecessarily ambiguous and this new definition is the purely the result of enough people using the word incorrectly long enough.

We don't mean "destroy 10%" when we use the word decimate anymore, I get it. Natural language, migration of meaning, subjective denotation etc.


So the normative comment should really be: avoid using "peruse" because it's ambiguous.

In a vacuum, perhaps, but to call it "unnecessarily ambiguous" when literally placed beside the word "skimmers" seems... intentionally dense

Tell me about it. I spend tons of karma absorbing downvotes in a losing battle correcting 'enormity' and 'epicenter'

Pick to your nit:

https://www.merriam-webster.com/words-at-play/peruse-usage

The casual reading meaning, although not the original one, has been in use since the 1500's.


I find this interesting. I've never heard anyone use this word with the meaning that Merriam Webster (and other dictionaries) give as its primary meaning (as in, the one which includes attention to detail).

It always means "just looking around" whenever I hear anyone use it.

Would be interested to hear other's thoughts. Maybe MW should consider changing the order of their definitions.


"When I use a word, it means just what I choose it to mean—neither more nor less." -- Lewis Carroll

There's still deception even if companies use dry language. Using deck-style language only makes it that obvious and easier to decipher.

This sounds very curmudgeonly of you - and I say that in the nicest way. I empathize with your point of view - but I think the graphics promote an important view into how the company perceives themselves. This is also important for investors to take into account.

You can skip the first dozen pages and get to the meat of the S1 further down.


I see this differently. This is a government document, but one that investors will read now and refer back to in the future. Why make it plain boring text when you can spin this document into a reason to invest?

This is an opportunity to tell the world who you are. Interested parties read these for a reason. It might as well look how you want it to look, as long as the same necessary content is listed.


> Why make it plain boring text when you can spin this document into a reason to invest?

That's exactly what the document was designed not to do. It's meant to convey facts, not "spin." Why do we use plain boring text on a prescription label? So the important disclosure information is readily available to consumers in a consistent and uniform format. The same logic applies to SEC filings.


You've answered your own question. Spin is manipulation: https://en.wikipedia.org/wiki/Spin_(propaganda)

The theory of well-regulated public markets is that all investors and all seekers of cash are put on an equal playing field. The goal is to maximize public confidence in the markets, which in turn maximizes the total useful investment. If hype becomes dominant, that will reduce overall returns and increase return variability. That in turn will reduce investor confidence, which reduces available capital, which reduces economic growth.

I understand that in the US we spend ~$500 billion a year on commercial manipulation, so it can seem normal. But it doesn't have to be, and maybe it shouldn't.


It looks like the management was involved in writing their own biographies. I can see why some people would want to spice up their IPO.

I'd agree except WeWork's emphasis on design is a huge reason they have become this big in the first place.

It's a public offering, WeWork didn't invent design. That's a terrible argument.

Not a terrible argument. Investors are people too. They can be swayed by nice looking things.

2nd page, yellow background - can't tell me that doesn't give you a sense they have their shit together.

All that being said - I won't be investing ha.


My argument is that they're using the same strategy, language and branding they used to sell their brand to the world to sell their public offering to the world.

I don't perceive that as detrimental, and don't see how designing a document is "disgusting". It's nontraditional.


But that isn't what an S-1 is supposed to be, from my understanding. It isn't a marketing document -- they are warping it.

Yeah, I see this as a pretty interesting illustration at how poor engineers are at figuring out how things actually function in the world for anything other than products.

Indeed, presumably they have paid a sizable team of designers quite well to create these diagrams, graphs, etc.

I was impressed by all the varied ways they have visualized their "data". The tipping scale, for instance, gives a clear before/after projection while being much more visually interesting than a plain graph.

Not to say that I believe all of it, but I do think visually appealing and/or dazzling graphics do have an effect on some types of people. Conscious or not.


While I would agree, I am a programmer, as are many other HN commenters, and even those who aren't are the sort of people who are ok with being on a forum filled with a bunch of programmers. That "garbage" might actually be more readable to a different slice of the public, that finds the "dry" parts so boring as to be unreadable. Just a hypothesis, I have no data to back that up, but maybe some people find the term paper more digestible with a little perfume?

I feel the opposite. The boilerplate S-1 stuff can be very mis-leading and unhelpful when trying to figure out how the business is and can work.

I for one think those photos / charts are important as otherwise you won't understand how big WeWork is. Couple of days ago I was casually checking Wework locations and was surprised that they have 24 locations in Beijing, 10 in Bangalore, 21 in Tokyo ! They are everywhere.

It’s trivial to convey that information in plain text

I don't think so - each of these locations are owned by joint venture subsidiaries (IndiaCo, JapanCo etc). Without a diagram like that on page 16, it would be near impossible for an investor to understand how their investment in the IPO relates to these subsidiaries.

I mean, you just managed to do it with just words alone.

I think it is interesting.

There are new paths to going public in the last several years, specifically because the government had made it too expensive to go public and be public primarily after Enron. One decade of companies coming to terms with staying private, one decade of companies coming to terms with the new ways of going public.

So they loosened that up and the industry reacts.


A Bloomberg columnist's reaction on Twitter:

"I have only read the related party section in the WeWork IPO filing so far, and I am not kidding that it is THE MOST BANANAS THING I HAVE EVER READ."

https://twitter.com/ShiraOvide/status/1161601877517246464


> Upon completion of this offering, Adam Neumann will own or control more than 50% of the total voting power of our capital stock

Another Zuckerberg style IPO. Activist investors beware...


It's actually a good thing, they can't be included in a lot of indexes because of that clause which means only people truly intent on setting fire to their cash will ever buy the stock.

This is dangerous in case of WeWork, since founder is leasing property to WeWork. Founder knows how much profit is company generating, he can increase rent prices and make WeWork zero profitable all the time, but his other company earns all profit, because he has >50% voting power, he might decide to stay with his own company even if he increases rent

FB opened at 38 and is now close to 200..so maybe not the best comparison. FB actually makes money.

But stille completely crazy, that you can buy up, most of the company, and Zuckerberg still controls it.

You know what you're buying. You're buying a share of the earnings/monetary value of the company, and are valuing it based on your belief in zuck as a leader. You are not buying any control in the company, and that's pruiced in. I'm sure shares would be worth more if zuck didn't control the company and you could gain control by buying shares.

So in the best interrest of shareholders, if you believe that shares would be worth more, if they they didnt have this class segregation, then they shouldn't..

Thats what would be best for shareholders..


Zuckerberg would argue that even if shirt term the value if the stock is lower, his judgement abilities are superior to that of the shareholders, and that it is better for the shareholders if he maintains control. He is also a shareholder after all, and he's doing what he believes will optimize the value of the shares since that is what he's encouraged to do. And who cares if it's in the best interest of shareholders? Shareholders know what they bought. They bought a share of the earnings generated by a company fully controlled by Zuckerberg. If they bought it, then they are fine with these terms. And zuck is clearly happy with things the way they are. If shareholders dont think zuck is maximizing their value, they dont have to own his shares, and if people cared and sold, that would incentivize zuck to change things.

I thought the NYSE was against this crazy Classes of stock insanity?

Based on the filing the company awarded 42M stock options to the CEO earlier this year. The filing mentions a share price of $110 per share, so that's over $4B.

That can't be normal, right? That's 10% of the entire company. It's more than Elon Musk got for Tesla by a long shot, and that was already controversial.


Options require the stock to go up to be worth anything. So if the stock price increases ten percent, that would be $420M (120-110) * 42M shares. Still seems like an awful lot.

That's actually not quite how it works: "The options awarded had a per-share exercise price equal to the fair market value of our Class B common stock on the applicable grant date"

Common stock is usually way less expensive than preferred, so while currently the company may be 'valued' at $110 per share, the common stock is probably in the $30s or $40s.

He's likely already up $2B on the stock options (pending vesting), assuming the company does IPO at $47B and all common stock converts at the $110 valuation.

Personally I think this is unheard of -- anyone else know of examples of CEO compensation like this prior to an IPO?


> anyone else know of examples of CEO compensation like this prior to an IPO?

Snapchat

https://fortune.com/2018/02/23/snapchat-evan-spiegel-ipo/


4.2M not 420M. 10% of 42M in options.

It's not $42M in options. It's 42M options, possibly valued at $110 each at the IPO. Hence $4B

That's not how option valuation works. They're worth the difference of their strike price to the price of the underlying intrinsically. So if his strike is $110 (which it's not for reasons others have pointed out - he was issued options on common stock), he gets the appreciation of the stock after IPO once he exercises. If the stock plummets after IPO, his options will expire worthless. Though they are probably LEAPs, and it's weird to denominate options per-share like that. Normally contracts are for 100 shares and it always confuses me the way companies award options.

According to the prospectus, they lose so much money because they are building out new locations. Their break even point takes about a year for an individual location.

So theoretically, they have a path to profitability. I just wonder where they get the cash in the meantime. >$1B/year burn rate, ouch.


Wouldn’t it be from the IPO? If they sell 10% of the company, it should raise billions.

That sounds like a ponzi scheme, not an investment.

I would never invest in WeWork, but no, not at all. A Ponzi scheme takes new investor dollars to pay the earlier investors’ “returns”.

Taking new dollars to grow the company to generate future profits is actually the definition of “investment”.


A ponzi scheme requires fraud. If you've evidence of fraud going on here then perhaps you should report it to the SEC.

Isn’t that like a trend these days? Unless I’m missing something, can you please explain?

The only difference between those two concepts is malice.

And yet, their operating margin before any growth spend (or G&A) is a meager 20%.

I suppose this has to do with relatively low average occupancy rates? I wasn't able to find occupancy rates on their existing locations in the S-1.


I don't wonder that, cash in today's climate is easy to get.

What I wonder is 'How spectacularly will their business implode if a recession starts?'


> I just wonder where they get the cash in the meantime. >$1B/year burn rate

They're raising up to $6B in a debt offering.


Actually building or leasing?

> We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness.

....


If you wanna put those financials in perspective...

We Company financials chart: https://imgur.com/a/Xky1NNh


It seems like they need to charge more or operate a leaner operation. Even after excluding marketing and sales expenses, they’re still not profitable. They also apparently have 12k employees, which is way too high.

At first I thought your graph was wrong... now I realize their business model is the thing that is wrong.

That wegrow bit seems really strange and cultish with all the mentioning of "connecting with the universe" and "cosmic education".

What the actual heck. Why are startups trying to do schools now? There is no way I'm sending my kid to a company with shareholders. Oh, and it costs $30,000 for your 4 year old to attend preschool. Why must we 'disrupt' anything and everything?

https://wegrow.com/ https://wegrowparents.squarespace.com/


>Rebekah has traveled the world apprenticing and studying under many Master Students, such as His Holiness the Dalai Lama and Mother Nature herself, and is committed to creating an educational community that fosters growth in humans' minds, bodies, and souls elevating the collective consciousness of the world.

Sounds like a vanity project for the CEO's wife.


Edtech startups have been a thing for quite some time, but yeah, WeXYZ is something different. If it's a building and it has staff, the We compancy will probably try to turn it into a vertical.

“When applying our average revenue per WeWork membership for the six months ended June 30, 2019 to our potential member population of 149 million people in our existing 111 cities, we estimate an addressable market opportunity of $945 billion. Among our total potential member population of approximately 255 million people across our 280 target cities globally, we estimate an addressable market opportunity of $1.6 trillion.

“(...) By applying the average employee occupancy costs to our potential member population of 149 million people in our existing 111 cities, we estimate a total opportunity of $1.7 trillion. Among the approximately 255 million potential members across our 280 target cities globally, we estimate a total opportunity of $3.0 trillion.”


Is this how these things are usually calculated?

Does a watch manufacturer say that there are approximately 255 million left arms which we can reach by post, and since our watches sell for $1000 that's a $255B opportunity?


> Is this how these things are usually calculated?

Yes, it’s a run-of-the-mill back-of-the-envelope TAM [1] estimate. The point of this number isn’t to value the company. It’s to identify obvious limits to scaling.

[1] https://en.m.wikipedia.org/wiki/Total_addressable_market


> It’s to identify obvious limits to scaling.

In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.

It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.


Even a nobody likes me knows to take TAM estimates with a grain of salt, so I imagine experienced investors know too.

I suspect if you added up all the TAM estimates for all the industries on Earth you'd get a number somewhere north of 10x the actual total value of the markets on Earth. I feel I'm being conservative; I really wanted to say 50x, but chickened out at the last minute before posting.


Thanks.

But isn't making a claim that it's plausible that every square inch of office space in every modern city will be managed by WeWork actually doing the opposite of identifying some of the obvious limits to scaling?

I suppose some of this is addressed elsewhere under other sections, and the fact that it's called the Total Addressable Market explains a lot, but it does seem remarkably arbitrary and to be of very little value.


They aren't making that claim though.

They are just doing simple back of the envelope math using their current metrics, but in word form.

No one is suggesting that those numbers will actually be achieved.


You're right, the mistake I was making was not realising that the calculation was for leased office space as an entire industry, rather than as their plausible potential customer base.

Since their actual market is more niche (in practice it seems to be satellite offices, startups and remote workers) than general commercial office space, I'd still propose that it's significantly overstated, but thanks for the correction regardless.


In this context, what is the value of stating these numbers?

any sane watch manufacturer would mention that people don't have a limit of owning one watch

Sheesh!

I think I found a company, label it tech and mention in the prospectus my potential customership of 8 billion people.

Do investors actually buy into such bullshit?


Investors seeking to move their money out of unstable countries won’t mind

Saudi sovereign wealth fund —> SoftBank Vision Fund —> WeWork

I do wonder why Silicon Valley workers tolerate this given the regime’s track record on... well... everything. Up in arms over Maven or Dragonfly but no one seems to care that this is part of the regime’s plan to sustain itself when the oil runs out.


An interesting thing happened a bit ago related to public companies and how they must account for leases in the accounting standards update 2016-02, Leases (Topic 842). For lessees, any leases that are over 12 months in duration will need to be presented on the company’s balance sheet as a right-to-use asset and corresponding liability for the obligation to pay rent.

So if you are a public company; you can rent space from WeCompany at an 11mo period and you can magically reduce your liabilities vs signing your own office space. While this may seem like a small change, this change could allow execs to improve their financials with accounting gimmicks.


Apparently Adam has pledged $1B in charitable donations over the next 10 years, otherwise he loses voting power. Is this normal?

>To evidence their commitment to charitable causes and to ensure this commitment is meaningful, if Adam and Rebekah have not contributed at least $1 billion to charitable causes as of the ten-year anniversary of the closing date of this offering, holders of all of the Company's high-vote stock will only be entitled to ten votes per share instead of twenty votes per share.```


It seems disingenuous to make themselves only 10x more powerful than other investors if they don't do what they say, rather than the accepted 20x.

Is such an ratio normal?


It's certainly normal for founders to give themselves more power than other investors.

Wework disclosed in this S-1 that the vast majority of its members are small organizations or a handful of seats purchased by “enterprises.” In the event of an economic downturn I wouldn’t think WeWork could reasonably expect to collect on its membership fees no matter its contracts - their small clients will go out of business or otherwise just stop paying. WeWork is still on the hook for its contractual lease obligations, with lease terms averaging 15 years by its disclosures and between $2.3-$2.4bn of contractual obligations per year in upcoming years.

I don’t see this going well.


Their operating expenses + depreciation seems to consistently be equal to their revenue, before the pre-opening expenses, sales and marketing expenses, and new market development expenses.

Investing in growth at a loss makes sense for such a rapidly growing company, but can they make the unit economics work to turn a profit (after covering general and administrative costs as well) when they need to? They do claim to be offering the ability to house employees at less than half the market rate for traditional leases + operations, so I guess they'd be able to raise prices to a more sustainable level when required, assuming those numbers are accurate.

As put off as I am by this whole company's branding and vibe, they do seem to have built a major business and likely have a substantial lead in the space due to brand recognition and operational experience.


Looks like they need to go public or else they will die. 2.8 billion deferred rent on the balance sheet = house of cards

I have a very unsophisticated eye, but it's difficult to avoid the feeling that a portion of modern VC is a pump and dump scheme. Particularly when taking into account recent equity moves by WeWork and Beyond Meat.

Beyond at least seems like it's a company with a strong path to profitability during a major shift in the food market towards meat alternatives. IDK what wework is doing...

The mechanics of deferred rent are fascinating here. They have 2.8 billion of deferred rent on their balance sheet. See note 11 and 17

It’s worth remembering that they have massive tenants in the form of big corporations taking entire floors to set up satellite locations.

What exactly is deferred rent and what does it mean for We Company?

Let me try to explain with an example. GAAP requires straight line depreciation of a lease. So if I gave you a 2 year lease on a facility and required a single payment of $1M at the end of the term, you'd account for that as 500K expense in year one, 500K in year 2. In year 1, your cash balance didn't change though right? I only wanted payment in year 2. So you record a 500K deferred rent liability to indicate that the expense has yet to hit your cash balance.

Basically over some set of future years they'll have to pay out 2.8B of cash. But they don't disclose the timing on when those payments come due.


Very clear explanation, thank you.

It seems somewhat curious they don't have to reveal when they would be contractually obligated to pay out?


They are required to disclose it. See page f-59 at the top. You'll note that their lease payments are 1.3B this year but go up every year after.

Edit: the rate of increase is startling. They are going to have an additional 500M in leases on top of their expense this year plus another 200M come 2021 on top of that


Is the $500M in leases on top of their expenses assuming 0 growth? Or is their growth plan baked in?

Also, is the deferred rent liability fixed assuming 0 growth?


"Our mission is to elevate the world consciousness". Let it never be said that tech startups were not very Californian.

Since this is neither a tech startup, not a California company, not sure what your comment is meant to say.

This statement though "The We Company is committed to being meat, single-use plastics, and carbon emissions free."

Buzzword Bingo? It's a strange statement that is maybe trying to attract investors that are looking to invest in those categories of companies and exclude others. Might as well just throw in a lot of jargon at that rate.

A laudable goal? Of all the statements to bemoan, why choose the one about environmental sustainability?

These are buzzword marketing goals, and usually unachievable without ridiculous costs, assuming they're even attempted.

Going meatless would save money, if anything. Recycling or buying multi-use containers also eventually costs less than single use, especially at scale.

Also, credit where it's due to We. Just because the common opinion of this company is negative, doesn't mean literally everything they do is bad.

I don’t buy that it’s “unachievable” at all.


> carbon emissions free

Are they not using concrete in all the buildings they're building around the world?


From Page 199: "A majority of Adam’s awards are also tied to the Company’s performance as a public company, particularly an increase in our market capitalization that is sustained over a period of at least 60 days".

Seriously? just 60 days?


Pets.com of the current tech boom, imo.

Let's hope for a commercial during the next Super Bowl.

I just realized that the last raise was at a $44 billion valuation. That seems unhinged. With the numbers in the S-1 filing, a valuation of closer to $20 billion seems more appropriate.

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