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WeWork (The We Company) is preparing for an IPO. On Wednesday, the company released its IPO listing to the SEC and hopes to raise $ 3.5 billion through its IPO.
I came across an interesting article on WeWork, comparing the Unicorn to Apple (AAPL). To be fair, both companies upset the status quo with their products. Apple has encouraged the world to reinvent mobile devices, while WeWork is changing the way the world perceives offices.
Apple and WeWork are very much focused on the user experience and both companies have positioned themselves as the preferred option in their segments. Apple and WeWork have forced their historical competitors to change their habits. WeWork's CEO, Adam Neumann, demonstrated charisma and vision, an intangible asset that Steve Jobs brought to Apple.
However, it may be too early to compare Apple's 10-year deficit unicorn. When Steve Jobs launched the iPhone, Apple already had more than three decades of experience and innovative products like the iPod and the Mac to present.
Apple and WeWork: not just hardware
The author of the article, Dror Poleg, says that the two companies have basically built software, services and other flawless features on the hardware. For the Apple iPhone, the definition of the hardware is clear. For The We Company, computer hardware is real estate that transforms into shared and private office space.
The WeWork community acts as its software, like iOS for iPhone. However, Apple is essentially fighting duopoly with Google's Android, while the barriers to competition with the "software" WeWork are weak. In contrast, WeWork's software is easier to copy than Apple's.
In the United States alone, which is WeWork's largest market, more than 1,000 flexible spaces were opened in 2018, most of which were new. This leaves a lot of choice for people looking for a community.
Differences in cost structure
Another differentiating factor between the two companies is the material cost structure. While Apple outsources its physical production and most of its material costs are variable, The We Company's hardware costs are long-term fixed costs.
WeWork leases long-term properties to redefine them, then sells private offices and shared offices in the short term. In April 2018, WeWork had $ 18 billion of future lease commitments. This model may be changing to become even more capitalistic as WeWork turns to property.
AAPL and WeWork: Show me the money
Apple and WeWork are facing mixed financing issues. With more than $ 200 billion in cash and marketable securities, Apple's conundrum is where it should deploy its cash. On the other hand, WeWork seeks to raise funds wherever it can after SoftBank has reduced its commitment to investing.
In addition to the product of the IPO, The We Company is also seeking debt subordinated to the success of its IPO. With expected financing needs of $ 19.6 billion by 2026, The We Company does not have many options.
Apple is profitable, WeWork is not
Apple is still a profit machine. During the quarter ended June 30, the Company generated EBITDA of $ 14.5 billion (27% of revenues) and net income of $ 10 billion (or 18.6%). Even before the launch of the iPhone in 2007, he was making nice profits, but with a lower margin. In fiscal 2007, Apple generated EBITDA of $ 4.7 billion (19.1% of sales) and net income of $ 3.5 billion (or 14.2%).
For its part, WeWork fights losses. We's operating losses nearly matched his company's revenues for the first six months of 2019. For every dollar generated by WeWork's revenues, it spent nearly two in operations. The company's operating losses more than doubled to $ 1.37 billion in the first half of 2019.
We should not be profitable in the coming years, making it more comparable than its cousin SoftBank Vision, Uber (UBER). Uber lost more than $ 5 billion in its operations in the second quarter alone.
When Uber became public, he compared himself to Amazon, Uber's unsuccessful attempt to convince markets to neglect his losses. Amazon has a cash cow in Amazon Web Services, which funded its e-commerce business. The comparison could not excite the markets.
What is the good comparison for The We Company?
I think WeWork should consider Beyond Meat (BYND) and Slack (WORK) as comparable for its IPO. Like WeWork, Beyond Meat and Slack created a new segment. Beyond Meat and Slack have both made a sensational debut in public, something WeWork would like to reproduce. However, since the markets are already considering a reduction in the value of The We Company, the road is difficult.
With regard to the comparable field, IWG Plc. is the closest rival to WeWork. The fact that the IWG working group is valued at $ 4.5 billion does not help because it is a profitable global competitor that generates more revenue than WeWork.
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