Is WeWork worth nearly $ 50 billion?

We are a company that defies description, at least according to its co-founder and general manager, Adam Neumann.

But for many, it is the badessment of the company that really defies any explanation.

As it prepares for an IPO, the parent company of WeWork, a trendy shared-office provider, is expected to be valued at around $ 47 billion (£ 36 billion).

This places it in the same category as the list of high-tech technology companies that are also operating and have attracted exorbitant valuations based on the idea that they will derive great benefits from the disruption of established markets.

Like them, WeWork has a "millennial-friendly" vision and aesthetic. The bright, spacious and comfortable offices that it rents are built around the community so that people can choose to work in an office or in a shared space, where they can connect to wifi, hold meetings and get to know them. other users of the facilities. A nearby kitchen with draft beer is probably a draw.

Some argue that under the beautiful scenery, We Company is actually a real estate company, which raises the question: should it have such a high market value?

What is the company We?

WeWork was created in 2010, just when the financial crisis had put the bottom of the office rental market. WeWork now has 425 sites in 100 cities and 401,000 members – those who use the offices.

The We company is also diversified into residential spaces with WeLive where people can rent fully furnished apartments for a few nights or months.

WeGrow, his school for children aged 2 to 11, affirms his commitment to "liberate the superpowers of all humans".

Neumann told Forbes magazine that the valuation of society depends more on its size, "energy and spirituality" than its income. As incomes rise, the group has not achieved its most recent goals and is generating losses.

While WeWork, WeLive and WeGrow may look like a disruptive technology company with their light, airy designs, colorful fluffy couches and beer pouches, badysts like Calum Battersby of Berenberg say it is is not so different from the competitors IWG, which formerly known as Regus and the Australian company ServCorp, which also offers equipped office spaces.

"It's a real estate company, without a doubt," he says. It is therefore a capital intensive business to manage.

Technology companies like Uber, the carpool application and food delivery, are platform-based companies, requiring an initial investment. But we need more capital to keep working.

"Whenever they earn an income, they will have to invest a lot to rent an office, build it, segment it into smaller sites that you can sell to people and businesses, just like any business. traditional office, "says Battersby.

Expanding into new areas also requires a lot of money; Last year, he spent $ 2.3 billion in cash.

Who invested in us?

We has attracted a list of leading investors, including Goldman Sachs and JPMorgan, to fund its expansion.

But it was when Softbank, the Japanese technology conglomerate, became involved in We, that the value of the business really increased.

Softbank and We initially signed a $ 4.4 billion contract in 2017, which earned it a $ 20 billion valuation.

Rett Wallace, founder and CEO of Triton Research, said the company's fundraising roadmap was "amazing."

"If you just look at the details of what they do, it does not explain how they were able to raise as much money," he says. "And the people they raised the money are not idiots."

Recently, the money flow of Softbank has been reduced. In January, the Japanese company invested $ 2 billion in the company, well below the $ 16 billion WeWork would have requested.

In the meantime, the company has not achieved its financial goals. Instead of expected revenues of $ 2.8 billion last year, sales amounted to $ 1.8 billion.

She was hoping for a profit of $ 941.6 million. That cost $ 1.9 billion.

We exceeded our target of 260,000 WeWork members. But he wanted 34,000 WeLive members and the residential activity was supposed to account for one-third of the total turnover, which was never the case.

For now, the WeLive furnished apartment business has only two locations in New York and Washington DC, but is scheduled to open in Seattle in 2020.

But Artie Minson, President and Chief Financial Officer of We, is optimistic. He recently told investors that he was ending the year 2018 with $ 6.6 billion in cash and that he "is still in the early stages of the real estate disruption, the largest clbad of badets in the world ".

Is We a "disruptive" company?

Although Charles Clinton, co-founder and general manager of the online financial and investment property platform, EquityMultiple, acknowledges that we are essentially a real estate company, his approach has upset the equipped office sector.

"I think they've broadened the base for access to this type of service in a very dramatic way by advertising for a new audience, much like Apple could have done. style alone is a form of disturbance. "

The shared residential market is also ripe for disruption, according to Clinton, making WeLive's most promising business under We's umbrella.

Although other things have been done by the company "feel a little more scattered by comparison," he adds.

Take Wavegarden, a Spanish company that creates ideal conditions for surfers – a hobby that Mr. Neumann would love.

The We Company paid $ 13.8 million for a 42% stake in Wavegarden. A year later, the value of his participation had been reduced to zero, although a spokesman for the group Us, indicates that Wavegarden "is currently experiencing a high demand".

We do not know if we can continue doing left-wing deals like this once public investors have to answer the question.

A practice in which Mr. Naumann leases buildings that he also owns at WeWork is also likely to raise issues. The Wall Street Journal reported that the firm had paid more than $ 12 million in rent to WeWork's "partially-owned" buildings between 2016 and 2017.

A spokeswoman said these deals had been leaked to her board of directors and investors, adding, "We have a policy in place that provides for review and approval procedures for related party transactions."

Clinton says such deals can work "if your private market investors accept it".

However, he says, "In an open society where you need to be more responsive to both your investors and the Securities and Exchange Commission, it becomes much more difficult."