WeWork’s parent company, the We Co., filed paperwork Wednesday indicating plans to raise $1 billion in its initial public offering. Included in the prospectus was another figure: a net loss of $689.7 million for the first six months of 2019.
As the We Co. enters the club of this year’s much-anticipated IPOs, analysts wonder which way it will fall. Some said the We Co. could go the way of strong tech stocks such as Zoom and CrowdStrike. Or it could be hammered like other tech unicorns, such as Uber and Lyft — whose stocks are trading below their IPO prices — which are struggling to convince investors that their ride-hailing models will be profitable soon. Slack and Dropbox have also been sagging.
“I think there’s a little more focus among investors [for WeWork] to carry the torch where Uber and Lyft have not done that thus far,” said Daniel Ives, an analyst at Wedbush Securities.
WeWork, which is based in New York, was founded in 2010 and has branched out beyond its popular co-working spaces. It has ventured into apartments and hotels with WeLive, and into the education sphere with WeGrow. In January, a rebranding put various segments under the umbrella of the We Co.
The We Co. has often said it is more akin to a tech company than a traditional real estate brand. Its public filing says “the entire member experience is powered by technology designed to enable our members to manage their own space, make connections among each other and access products and services.” The filings said the company operates in more than 528 locations in 111 cities in 29 countries. It reported $1.54 billion in revenue in the first six months of 2019.
This year has been widely expected to bring a flood of multibillion-dollar tech IPOs. Analysts point to the year 2000 — just as the dot-com bubble burst — as the last time so many 11-figure American tech companies went public in the same year.
But much of the buzz around those successes has been overshadowed by disappointments, namely Uber and Lyft. Just last week, Uber reported it lost $5.2 billion in the second quarter. The company said results were affected by a $3.9 billion one-time stock-based compensation item stemming from the company’s May IPO, as well as driver appreciation rewards totaling nearly $300 million. Uber chief executive Dara Khosrowshahi said the company would work to improve its algorithms, including functions that match riders to drivers and one another, as well as increasing the number of seats filled in each ride.
Lyft reported better-than-expected revenue growth but still lost $644.2 million, compared with $178.9 million a year ago. Lyft said much of the loss was attributable to stock-based compensation and payroll tax expenses arising from its public offering.
“Right now, investors are still skeptical of the ride-sharing space and especially given the lack of profitability on the horizon, you’ve seen [Wall Street] take a glass-half-empty view,” Ives said.
But Ives cautioned against painting WeWork with the same brush. Uber and Lyft have the perception of “two kids fighting in the sandbox,” Ives said. WeWork, meanwhile, doesn’t have a competitor in the co-working space with as popular a name.
“It’s not just about the IPO,” Ives said. “The companies need to make sure when they come out that there’s a fundamental performance that matches the excitement.”
WeWork’s job will lie in convincing investors that it has a path to profitability, said David Ethridge, an IPO expert at PwC said. Over the past few years, and particularly in the tech world, investors have become more comfortable giving companies a longer timeline to deliver.
“There’s been a higher level of risk tolerance than we might have seen in the past,” Ethridge said.
Much of the frenzy around WeWork focuses on its significant losses. But Ali Mogharabi, a senior equity analyst at Morningstar, cautioned that IPOs are in place for companies to raise additional capital as they aim for profitability.
Going public inevitably brings higher scrutiny from Wall Street. But Mogharabi said an analysis of data provided by PitchBook showed that from 2006 to 2018, tech IPOs have underperformed the Standard & Poor’s 500-stock index during their first 12 months as public companies. That’s largely because companies aren’t necessarily as focused on profitability as they are on growth.
Still, “the market is putting pressure on them saying: ‘Give me indicators that you are becoming profitable. Show us better numbers on the bottom line,’” Mogharabi said.
Added Ethridge: “It takes time for companies to show whether they can act like a public company — whether they can be a public company."