> 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.
>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...
1. Collect data
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.
Well, sure, but all they're being told is that data is the new gold.  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.
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".
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.
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.
> 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
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.
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
Techbucks S-1 coming soon!
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.
Edit - found this - https://www.inc.com/betsy-mikel/wework-is-trying-a-creepy-ne...
"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?"
With that said, there's already companies that track workers like this, so I definitely think there's a market for it.
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?
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.
"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."
> 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.
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!
* 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.
(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)
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.
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?
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.
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)
AWS is their real money maker.
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.
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.
Convert the We Work spaces into homeless shelters = profit from Government contracts.
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.
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.
"We are party to lease agreements for four commercial properties with landlord entities in which Adam has an ownership interest..."
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 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.
But yeah, red flag a mile wide.
(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.
Even if the company removes the founders they're going to be getting that lease payment forever.
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?
> 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.
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.
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.)
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.
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.)
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.
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.
(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!")
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.
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.
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.
We don't mean "destroy 10%" when we use the word decimate anymore, I get it. Natural language, migration of meaning, subjective denotation etc.
The casual reading meaning, although not the original one, has been in use since the 1500's.
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.
You can skip the first dozen pages and get to the meat of the S1 further down.
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.
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.
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.
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.
I don't perceive that as detrimental, and don't see how designing a document is "disgusting". It's nontraditional.
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.
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.
"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."
Another Zuckerberg style IPO. Activist investors beware...
Thats what would be best for shareholders..
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.
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?
So theoretically, they have a path to profitability. I just wonder where they get the cash in the meantime. >$1B/year burn rate, ouch.
Taking new dollars to grow the company to generate future profits is actually the definition of “investment”.
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.
What I wonder is 'How spectacularly will their business implode if a recession starts?'
They're raising up to $6B in a debt offering.
We Company financials chart: https://imgur.com/a/Xky1NNh
Sounds like a vanity project for the CEO's wife.
“(...) 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.”
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?
Yes, it’s a run-of-the-mill back-of-the-envelope TAM  estimate. The point of this number isn’t to value the company. 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.
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.
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 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.
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.
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?
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.
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.
>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.```
Is such an ratio normal?
I don’t see this going well.
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.
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.
It seems somewhat curious they don't have to reveal when they would be contractually obligated to pay out?
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
Also, is the deferred rent liability fixed assuming 0 growth?
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.
Are they not using concrete in all the buildings they're building around the world?
Seriously? just 60 days?