The We Company is looking to raise billions of dollars in its upcoming IPO. However, many potential investors are worried that there’s too much going on there that isn’t explanatory. Should you invest in WeWork?
Founded in 2010, WeWork is a company in the business of creating fully set up workspaces for several interested entities including startups, freelancers, entrepreneurs and pretty much any others who may not be able to get their own office space and would need to rent. The We Company as it is now called, has been in the news in recent times for several different reasons including its initial public offering (IPO) which is set to take place soon. The company expects to raise between $3 and 4 billion this September.
What is the General Sentiment?
Currently, opinions are almost completely polar. On one hand, there are some who believe that the growth of the company which started almost 10 years ago is extremely impressive.
The entire company (and not just WeWork) currently has about 562 different locations globally with a staff strength of about 15,000. It’s also interesting to note that members registered with the company are even allowed some level of access to health insurance and a summer retreat which takes place annually.
On the other hand, some investors are worried that The We Company is extremely overvalued, has a little too much liability, is not a unique company as there many others who do the same thing, and is most of all about to go public in a period which hasn’t been exactly favorable for most other markets worldwide.
Why You Shouldn’t Buy WeWork Stock
There are several reasons for any investors to consider not partaking in the IPO. One of the company’s weak points, as reported, is that a lot of the top people in the organization are either leaving or planning to leave. Furthermore, even the employee strength down the line of the company’s organizational structure seems to be shrinking. En masse departure in a company could be a tell-tale sign that all is not well.
There’s also the problem of obscurity. Potential investors are a little too unsure about how exactly the system works, the company’s exact plans for expansion after the IPO and also it’s organizational structure. Jamie Hodari, Chief Executive of a WeWork competitor, Industrious, has elaborated on this, saying “[WeWork] doesn’t quite have the requisite information for a reader to understand how the business is actually done on the ground.”
The problem of organizational structure is a pretty deep one. To most people, it is simply not explanatory at all. Reportedly, CEO and founder Adam Neumann, has a little too much control. Firstly, he is said to have no official contract, meaning he could up and leave at any time.
Secondly, the WeWork structure is a multi-class share system, which directly makes the company ineligible for listing on the S&P 500.
Thirdly, if it happens that Neumann cannot function as CEO anytime before 2029, the company’s filing specifies that Adam’s wife, Rebekah along with only two board members, will single-handedly choose the next-in-line.
Why You Should Buy
There are also several factors which enable a positive case to be made for the company. For example, it’s a bit biting when you think about the fact that last year, the company had a total revenue of more than $1.5 billion but ran into such huge operating costs and eventually gathered up a loss of almost 1.4 billion.
However in the same time, the company has spent a lot of resources on more than a few new locations. Between 2016 and 2018, WeWork expanded into more than 300 different locations and when this context is considered, the losses might not seem too terrible.
The business also has a very large chance of expansion because the market is equally as large. WeWork expects that it can reach more than 250 million customers if it continues to expand at the current rate or even higher. According to the filing:
“We expect to expand aggressively in our existing cities as well as launch in up to 169 additional cities.”
One more thing to consider is how much growth WeWork has had. Very recently, shared workspaces did not seem like they’d last because no-one thought that the business model could work.
But with the growing number of startups and businesses increasing every day, shared workspaces have almost automatically become a startup favorite because of the ease of doing business without the kind of funds required for a proper office setup. WeWork seems to be the number one choice.
So far there’s definitely a void for a company like WeWork to fill. However the company seems to have bitten and is still biting more than it can chew.