WeWork filed its IPO homework. So we had a look at its small print and... yowser. What has El Reg got itself into?
Authentic tech company vibes, right down to billions in losses and admission it 'may never be profitable'
Comment WeWork, the office rental upstart that poses as some kind of tech startup incubation facility, has submitted the paperwork for its stock-market debut in the US – and its filings warn the biz “may never be profitable.”
This news is everywhere today because it's the middle of August and no sane business knowingly announces stuff during the summer holidays. Business journalists, on the other hand, will be delighted that there's something to write about.
You, dear reader, if you pay much attention to business and/or technology news, will doubtless have read lots of earnest guff today about how wonderful this WeWork thing is. You may even be tempted to sink some of your wage packet into WeWork, so the magic of capitalism can grow your hard earned into a bigger pile of cash for your delight, delectation, and possibly retirement.
If that's what you want to do, go and read something else now. Really. The rest of this article will only upset and annoy you.
Also, full disclosure: The Register has WeWork offices in London, code-named Vulture Central, and in San Francisco, code-named Vulture West. We use WeWork because, at least in the case of California, our normal bog-standard office rent doubled overnight with no extra benefits. WeWork at the time was cheaper, and it lured us with stuff like booze, coffee and tea, faster internet, big meeting rooms for visitors, modern decor, and so on.
We also cannot stress enough how much WeWork is dying to mimic the office spaces of Google, Facebook, Microsoft and similar moneybags operations, even though it has nothing like the tech giants' level of income and capital expenditure. WeWork cannot compete with the goliaths' sprawling campuses of meeting rooms, fully featured kitchens and cafeterias, airy workspaces, cinemas, doctors' surgeries, hairdressers, baby creches, video arcades, music studios, zen gardens, gyms, and other in-house attractions and distractions.
Moving from our own office spaces – decked with stuffed vultures, and computer components and empties strewn over the shop – to what looked like a Nathan Barley set – think shelves packed with books of art, neon lights and potted plants, chillwave and 1980s hits playing 24/7 in the lobbies, yoga classes outside, etc – was a culture shock, but we got over it. Mostly. We hope the upstart doesn't kick us out for this article. There are plus points for using WeWork, trust us.
But, see, the thing is, we cast our collective eyes over WeWork's US SEC form S-1, its formal filing to be admitted to the US stock market. And it reads like some kind of weapons-grade new-age marketing prospectus – complete with soft-focus photos and silly graphics and empty boasting on a scale that makes even the sales catalogs from Silicon Valley's top psychotic tech vendors appear borderline palatable.
It’s full of utter toss like this:
We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness. We have built a worldwide platform that supports growth, shared experiences and true success. We provide our members with flexible access to beautiful spaces, a culture of inclusivity and the energy of an inspired community, all connected by our extensive technology infrastructure. We believe our company has the power to elevate how people work, live and grow.
Translated, the above bilge means you can rent a desk in an office building decked out with, what feels like, more CCTV than you'd find in the average prison. In return for your rental money (which, to be fair, compares favorably with boring old non-tech-just-an-office-space-biz Regus) you get a 4’ wide desk, the aforementioned coffee and a selection of sawdust in gossamer bags labelled “tea”, and the infamous booze. In our London location, this consists of self-service lager, ale, and cider taps, and if you’re lucky, a second lager. In Vulture West, it's some kind of homeopathic IPA via a tap that is unlocked at 9am and locked again in time for 5pm. Presumably, this is to cut costs, by discouraging people from staying in the evening to drink all the beer, whereas it unfortunately encourages day drinking and, well, nw you know were all the typoes come frm
In Vulture Central, if the barrels of beer run dry, they’re not changed until the following day, making WeWork a disappointing choice for pre-match bevvies unless you hit it early and hard, something Vulture Central has absolutely no knowledge of (nor could we possibly explain its $5,200 loss per customer; even pints of beer in London and Cali aren't that expensive.) Working lifts are also a distinctly optional part of the package: they are never fully working, it seems.
There's also lots of organised networking events, which is something we understand humans like to do from time to time when they're not beavering away at their desks. Unfortunately, a lot of these networking events are stealth marketing pitches by startups. It’s not enough to be a competitive office space provider in this day and age, oh no. Wework has polished off its own marketing Kool-Aid and wants you to think it’s a tech unicorn incubator.
“Our purpose-built technology and operational expertise has allowed us to scale our core WeWork space-as-a-service offering quickly, while improving the quality of our solutions and decreasing the cost to find, build, fill and run our spaces,” burbles the ridiculously long S-1 filing.
Meanwhile, cutting past all the nonsense pictures like this one…
…we get to the meat of it. If you invest your money in WeWork, what are your odds of getting it back with interest?
We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level (as determined in accordance with GAAP) for the foreseeable future.
So that’s encouraging.
Then we read the small print – OK, some of it
WeWork doesn’t have an employment contract with its chief exec.
In its own words from the S-1: “Adam [Neumann] has been key to setting our vision, strategic direction and execution priorities. We have no employment agreement in place with Adam, and there can be no assurance that Adam will continue to work for us or serve our interests in any capacity. If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.”
Cause for concern? No, it’s fine, they’re only renting an undisclosed amount of the company’s business-critical buildings from the same CEO they don’t employ as well as his boardroom mates: “We have entered into several transactions with our Co-Founder and Chief Executive Officer, Adam Neumann, including leases with landlord entities in which Adam has or had a significant ownership interest. We have similarly entered into leases with landlord entities in which other members of our board of directors have a significant ownership interest.”
WeWork also notes that it is subject to China’s Cybersecurity Law, the infamous one which forces companies in China to help the Chinese state commit espionage (or as they put it, “lay out requirements on cybersecurity, data localization and data protection, subjecting many previously under-regulated or unregulated activities to government scrutiny”). So relax, there’s nothing to see here.
Don't give them your card details... yet
Just to really reassure the great unwashed as well as potential investors, WeWork states that its credit-card handling facilities are not PCI-DSS compliant (“Although we expect to become Payment Card Industry Data Security Standard (PCI DSS) compliant in 2019, our practices with respect to this type of information are evolving and do not yet fully comply with that industry standard and other applicable guidelines.”)
They’re also in intellectual property disputes about their “We” branding (“we have received correspondence from third parties asserting potential claims of trademark infringement with respect to some of our WE names and trademarks. We dispute these assertions”).
WeWork’s long-term lease repayment commitments stood at “$47.2 billion as of June 30, 2019,” while the average length of their US building leases is said to be 15 years. In the six months to 30 June this year alone, WeWork made a loss of $689.7m from revenue of $1.54bn, equating to a loss per share of $4.15. It lost $1.61bn in 2018, $884m in 2017, and $429.7m in 2016.
Enjoy your tech company Kool-Aid, future WeWork investors. ®