WeWork’s parent, We Co., has raised billions of dollars from private investors, including SoftBank Group Corp. at a $47 billion valuation. The shared-office company is having a harder time convincing potential public-market investors it’s worth even half that much ahead of a planned initial public offering. Here are some of the issues investors are weighing as they scrutinize the business and growth prospects of We, which declined to comment.
In 2018, We took in $1.8 billion in revenue—but for every dollar the company generated, it spent nearly two. The biggest expense: rent to landlords, which is equal to 65% of We’s revenue.
Investors aren’t necessarily expecting startups to be profitable by the time they go public. However, a company’s ability to show that losses are slowing or shrinking—even as the company grows—often gives investors comfort the business is sound, and will eventually turn a profit. Many companies that went public this year show a widening gap between revenues and operating losses—but the two measures are growing in tandem for We.
We has raised more than $10 billion in nine years by turning to venture capital firms, then banks, then mutual funds and ultimately SoftBank. The cash has, in turn, been used to build out We’s growing number of offices.
It’s not unusual for technology startups to raise lots of money before they turn profitable, as the firms are often more focused in the early years on growing and creating new markets for their products and services. For instance, many of today’s batch of giant startups expect to stay in the red for far longer than a decade. Still, investors do expect to see a clear path to profitability and We hasn’t disclosed any profits since its founding in 2010.
IWG PLC, known for its Regus brand, has office and co-working spaces that compete with We and the two companies had a similar number of occupied desks as of mid-2019. But the Switzerland-based IWG has a market capitalization that is about one-tenth the value investors assigned We in January,
Write to Eliot Brown at eliot.brown@wsj.com
