> 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.
I understand the reasoning behind having these in the document, but I always get a kick out of seeing it said so plainly.
>WeWork's latest acquisition is a small software company with 24 employees. Euclid is a spatial analytics platform...Euclid's website says the company is "focused on redefining the workplace experience of the future." Translation: optimizing every aspect of the physical workplace so workers are their most productive. Euclid does this by tracking how people move around physical spaces. Its technology can track how many people showed up to a meeting or to that after-work happy hour. The company can see where employees tend to congregate and for how long. It's all done over Wi-Fi.
Edit - forgot to link the article - https://www.inc.com/betsy-mikel/wework-is-trying-a-creepy-ne...
1. Collect data
2. ???
3. Profit
In this case, I doubt having that data will do much; humans are already natural optimizers. Really, the things workplaces should be optimized for are unlikely to be easily measurable, so at best these systems will optimize for the wrong thing.
And really, the reason workplaces aren't particularly optimal now is that most decisions are made not for maximizing business value, but for maximizing the power and comfort of those high up. As an example, when businesses relocate their headquarters, it is generally to move closer to the CEO's home. Or we can look at all the decisions made to optimize a visible metric, like cost, to the harm of invisible ones. E.g., the open office plan, which is cheap and lets managers supervise by looking out their office window, but significantly harms productivity and employee happiness.
> We have approximately 1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business
I have used Regus on and off in the US for a decade. I also have a free WeWork subscription through my AMEX platinum (boosting numbers pre-IPO?).
Regus is actually better run and more comfortable...just doesn't have the millenial loft vibe. I think that vibe is costing them too much for a real estate play!
* It's always a gamble, but if you'd received $x0,000 of options 3 years ago, they'd be worth $x00,000 now.
* You'll own 0.00x% of the company, and if you owned that much of Facebook you'd be a multimillionaire.
* Companies like Amazon don't make a profit, and the stock market is fine with it. They know Bezos could turn a profit if he wanted to, but he's putting all the money to work growing the business.
* A company's IPO price isn't its all-time peak price; Google's stock increased 9x from their IPO price.
You'll note that, if you look carefully, nowhere in those points did I promise WeWork options would ever be worth anything.
Their business model seems to be selling short term leases and buying long term leases. This is all fine and dandy as long as they can find enough buyers for the short term commitments, but the distribution of almost all such strategies tends to be heavily tailed. You basically collect a small but consistent margin and occasionally suffer heavy and unavoidable losses.
That's a perfectly fine strategy if the company can stay solvent during the loss, but this seems far from certain in case of WeWork.
Convert the We Work spaces into homeless shelters = profit from Government contracts.
This is more appealing to businesses who don't want large capital expenditures, which could or could not be related to a recession. It's more related to market trends and access to a lot of cheap capital.
Oof.
"We are party to lease agreements for four commercial properties with landlord entities in which Adam has an ownership interest..."
Is this a normal sort of thing to see in such a filing? He's being referred to by his first name and heaped with praise.
Adam is a part of everything. He is in the sky and sea. He is in the dreams of children at night. He is all that there is, forever.
But yeah, red flag a mile wide.
(A hedge being where you take some of your money and buy protection against downside risk. For example, since I'm in tech, it's in my interest to sell some of my company stock and buy something that is uncorrelated with tech. That way if my company blows up, I won't be totally broke. The Texas hedge is doing the opposite, so that you're even more screwed if the bet doesn't go your way.)
This could indicate confidence, but it could also indicate a double-or-nothing mentality. You can only be so bankrupt, after all.
https://www.irs.gov/businesses/small-businesses-self-employe...
Even if the company removes the founders they're going to be getting that lease payment forever.
The laundering aspect may have a grain of truth in a way though; instead of having e.g. an investment or sale paid out (and consequently taxed), it's rerouted into buying a building. Why pay I dunno, 50% income tax to get the money right now instead of reinvesting the money and long-term earning a lot more?
> These exemptions include ... reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis
I hadn't noticed this in recent big tech IPOs so I looked it up (Rule 12b-2):
> The term emerging growth company means an issuer that had total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year.
So they claim to have had under $1.07B of gross revenue in 2018, but they list $1.8B in revenue on page 21.
> We ceased to be an emerging growth company as defined in the JOBS Act on December 31, 2018. However, because we ceased to be an emerging growth company after we confidentially submitted our registration statement related to this offering to the SEC, we will be treated as an emerging growth company for certain purposes until the earlier of the date on which we complete this offering and December 31, 2019.
So they started the process before EOY 2018 where they knew they'd have $1B, so as to avoid disclosure until they are public. Sneaky!
Slack did the same thing, and had $1.05B in revenue for the previous tax-year when they registered (and $2.2B for 2018). I guess this is a convenient goalpost.
> Our membership base has grown by over 100% every year since 2014. It took us more than seven years to achieve $1 billion of run-rate revenue, but only one additional year to reach $2 billion of run-rate revenue and just six months to reach $3 billion of run-rate revenue.
To claim run-rate revenue like this feels imaginary and misleading.
This is basically like putting perfume on a term paper. Regulators could do well to clamp down on this sort of activity, especially with the S-1’s reputation as a means to truly inform investors.
1. If disgruntled investors were to sue WeWork, the pitch-deck material could be referred to by WeWork's counsel in tactical maneuvering such as a motion for judgment on the pleadings, without having to jump through all the hoops that might otherwise be required;
2. Worst case, if a lawsuit ended up going all the way to a jury trial, the pitch-deck material presumably would be sent back into the jury room as a "real" exhibit, allowing the jury to review the pitch-deck material during deliberations. (The jurors might even be given individual notebooks with copies.) In contrast, if the pitch deck were left out of the S-1, the judge might or might not allow it to go back into the jury room, especially if it were a so-called demonstrative exhibit prepared for the litigation.
(I teach my contract-drafting students to draft agreements with an eye toward being readable by judges and jurors, with tables, footnotes, non-legalese language etc. — and if the contract language is understandable to a juror, then the parties' business people will be able to get to signature more quickly and are less likely to get into disputes afterwards.)
Also, I totally disagree about the evidentiary issue and would venture to say you're wrong. First of all, the idea that you'd need to cram a pitch deck into a filing in order to get it into evidence is downright silly. A defendant could easily get it into evidence through a fact witness or PMQ. Second, and more importantly, you wouldn't want to do it in anticipation of litigation because you'd lose any control you might otherwise have had over its admissibility (a filing like that would be pretty much guaranteed to come into evidence). Third, and relatedly, you wouldn't want to do it because, pursuant to my second point, it's then going to come into evidence in all of your cases. As they say, the record is forever.
Plaintiff- or defense side?
> If I were a defendant accused of making misrepresentations, I'd most likely want the pitch deck kept out.
That's never gonna happen (keeping it out), so good defense counsel will grasp the nettle and get out in front of the issue.
Also (something I didn't mention before but should have): There's a jury-psychology benefit to being able to say, in effect, we submitted all this to the SEC, and they approved the registration. It's analogous to why patent applicants are well-advised to tell the USPTO about all the prior art that they know of — so that at trial, the patent owner's trial counsel can respond to the infringer's counsel with, yeah, we know about that prior art, because WE TOLD THE EXAMINER about it, and s/he issued the patent, so who ya gonna believe — this infringer's BS argument, or the government expert who was tasked by law with issuing only valid patents? That helps fend off infringers' invalidity challenges.
> "Pitch deck stuff" is aspirational, to put it charitably.
I perused the S-1; at first glance, that pitch-deck stuff is exactly what I imagine WeWork's litigation counsel might affirmatively want the judge, the judge's law clerk, and/or the jury to see — and, at trial, for an expert witness to be able to use as a visual aid in explaining the value proposition to the jury. (I've never done securities litigation, but I used to do IP litigation for complex technologies, where similar principles apply.)
> A defendant could easily get it into evidence through a fact witness or PMQ.
True, but again, it's always nice to be able to point out to the judge/law clerk/jury that this is what was disclosed to the SEC, and that the SEC approved the registration. Sure, legally that fact has very little weight; psychologically, though, it can't hurt and it costs essentially nothing. (You do have to make sure it's factually unchallengeable, but top-flight securities counsel will do their best to achieve that anyway.)
In practice, those that actually took companies public know that the more terrible crap you throw into the S-1 ( pitch deck included ) as long as you state that risk-wise you are probably a terrible investment for the public, the better protected you are from the lawsuits in the future when the public's investment does not pan out: you say 'we are doing X and this is our rosy pie in the sky pitch deck, but we must tell you the risk is that none of this is helping us to make money. Buyer beware'
Should one look at the S-1s of the tech companies that went public in last 4-5 years one would see that pattern
Source: Attorneys engaged by the investment banks to help companies to IPO.
(The danger with this approach, of course, is that if you inadvertently leave something out, the plaintiffs' lawyers will spotlight the omission and argue, "they LIED!")
This was a big one in Uber’s filings where it looked like they were probably mixing in Uber Eats to hide flat or declining usage of the actual ride sharing service. Public companies changing how something has been historically reported also raises similar questions. Report the metrics that look amazing, exclude, merge, or mask the stuff that looks bad.
Companies get a lot of latitude with the first few pages. Seasoned S-1 skimmers peruse that stuff, but save the digging in for the risk factors, financials and the accompanying notes.
https://www.merriam-webster.com/words-at-play/peruse-usage
The casual reading meaning, although not the original one, has been in use since the 1500's.
You can skip the first dozen pages and get to the meat of the S1 further down.
This is an opportunity to tell the world who you are. Interested parties read these for a reason. It might as well look how you want it to look, as long as the same necessary content is listed.
That's exactly what the document was designed not to do. It's meant to convey facts, not "spin." Why do we use plain boring text on a prescription label? So the important disclosure information is readily available to consumers in a consistent and uniform format. The same logic applies to SEC filings.
The theory of well-regulated public markets is that all investors and all seekers of cash are put on an equal playing field. The goal is to maximize public confidence in the markets, which in turn maximizes the total useful investment. If hype becomes dominant, that will reduce overall returns and increase return variability. That in turn will reduce investor confidence, which reduces available capital, which reduces economic growth.
I understand that in the US we spend ~$500 billion a year on commercial manipulation, so it can seem normal. But it doesn't have to be, and maybe it shouldn't.
2nd page, yellow background - can't tell me that doesn't give you a sense they have their shit together.
All that being said - I won't be investing ha.
I don't perceive that as detrimental, and don't see how designing a document is "disgusting". It's nontraditional.
I was impressed by all the varied ways they have visualized their "data". The tipping scale, for instance, gives a clear before/after projection while being much more visually interesting than a plain graph.
Not to say that I believe all of it, but I do think visually appealing and/or dazzling graphics do have an effect on some types of people. Conscious or not.
There are new paths to going public in the last several years, specifically because the government had made it too expensive to go public and be public primarily after Enron. One decade of companies coming to terms with staying private, one decade of companies coming to terms with the new ways of going public.
So they loosened that up and the industry reacts.
"I have only read the related party section in the WeWork IPO filing so far, and I am not kidding that it is THE MOST BANANAS THING I HAVE EVER READ."
Another Zuckerberg style IPO. Activist investors beware...
That can't be normal, right? That's 10% of the entire company. It's more than Elon Musk got for Tesla by a long shot, and that was already controversial.
Common stock is usually way less expensive than preferred, so while currently the company may be 'valued' at $110 per share, the common stock is probably in the $30s or $40s.
He's likely already up $2B on the stock options (pending vesting), assuming the company does IPO at $47B and all common stock converts at the $110 valuation.
Personally I think this is unheard of -- anyone else know of examples of CEO compensation like this prior to an IPO?
Snapchat
So theoretically, they have a path to profitability. I just wonder where they get the cash in the meantime. >$1B/year burn rate, ouch.
Taking new dollars to grow the company to generate future profits is actually the definition of “investment”.
I suppose this has to do with relatively low average occupancy rates? I wasn't able to find occupancy rates on their existing locations in the S-1.
What I wonder is 'How spectacularly will their business implode if a recession starts?'
They're raising up to $6B in a debt offering.
....
We Company financials chart: https://imgur.com/a/Xky1NNh
Sounds like a vanity project for the CEO's wife.
“(...) By applying the average employee occupancy costs to our potential member population of 149 million people in our existing 111 cities, we estimate a total opportunity of $1.7 trillion. Among the approximately 255 million potential members across our 280 target cities globally, we estimate a total opportunity of $3.0 trillion.”
Does a watch manufacturer say that there are approximately 255 million left arms which we can reach by post, and since our watches sell for $1000 that's a $255B opportunity?
Yes, it’s a run-of-the-mill back-of-the-envelope TAM [1] estimate. The point of this number isn’t to value the company. It’s to identify obvious limits to scaling.
[1] https://en.m.wikipedia.org/wiki/Total_addressable_market
In my experience, it's more likely in order to show an enormous number as a way of telling investors, the executives you need to approve your product/project, etc. that your thing has just incredible potential.
It has some value. If the TAM isn't very big and you'd have to achieve 50% of it to ever turn a profit, that may be a red flag. But TAMs that lead to business projections like: "We only need to put our watch on 10% of the left arms in the world to make a huge pile of cash!" are pretty bogus.
But isn't making a claim that it's plausible that every square inch of office space in every modern city will be managed by WeWork actually doing the opposite of identifying some of the obvious limits to scaling?
I suppose some of this is addressed elsewhere under other sections, and the fact that it's called the Total Addressable Market explains a lot, but it does seem remarkably arbitrary and to be of very little value.
I think I found a company, label it tech and mention in the prospectus my potential customership of 8 billion people.
Do investors actually buy into such bullshit?
I do wonder why Silicon Valley workers tolerate this given the regime’s track record on... well... everything. Up in arms over Maven or Dragonfly but no one seems to care that this is part of the regime’s plan to sustain itself when the oil runs out.
So if you are a public company; you can rent space from WeCompany at an 11mo period and you can magically reduce your liabilities vs signing your own office space. While this may seem like a small change, this change could allow execs to improve their financials with accounting gimmicks.
>To evidence their commitment to charitable causes and to ensure this commitment is meaningful, if Adam and Rebekah have not contributed at least $1 billion to charitable causes as of the ten-year anniversary of the closing date of this offering, holders of all of the Company's high-vote stock will only be entitled to ten votes per share instead of twenty votes per share.```
Is such an ratio normal?
I don’t see this going well.
Investing in growth at a loss makes sense for such a rapidly growing company, but can they make the unit economics work to turn a profit (after covering general and administrative costs as well) when they need to? They do claim to be offering the ability to house employees at less than half the market rate for traditional leases + operations, so I guess they'd be able to raise prices to a more sustainable level when required, assuming those numbers are accurate.
As put off as I am by this whole company's branding and vibe, they do seem to have built a major business and likely have a substantial lead in the space due to brand recognition and operational experience.
Basically over some set of future years they'll have to pay out 2.8B of cash. But they don't disclose the timing on when those payments come due.
It seems somewhat curious they don't have to reveal when they would be contractually obligated to pay out?
Also, credit where it's due to We. Just because the common opinion of this company is negative, doesn't mean literally everything they do is bad.
I don’t buy that it’s “unachievable” at all.
Are they not using concrete in all the buildings they're building around the world?
Seriously? just 60 days?
I wish they publish the ceo salary before 2018. Is that more for a public perception?
And we see only CFO/Legal and no one else.
The Company does not have an employment agreement in place with Adam and, accordingly, Adam does not earn any salary from the Company and would not be entitled to severance if he no longer served as Chief Executive Officer. Adam earned no salary in 2018 and only earned $1 in 2017. Moreover, Adam is not entitled to any perquisites from the Company and elects to reimburse the Company in full for any perquisites he may receive in connection with his service as our Chief Executive Officer."
The value of the options he was granted, as well as related party transactions are quite significant though...
> - an exemption to include in an initial public offering registration statement less than five years of selected financial data
> - reduced disclosure about executive compensation arrangements and no requirement to include a compensation discussion and analysis
> - accounting standards transition period accommodation that allows for the deferral of compliance with new or revised financial accounting standards until a company that is not an issuer is required to comply with such standards.
Number 2 seems surprising. Is that par for course in these dealings?
...yip to the moon!
The fucking hot dog stand at my neighborhood park is in better financial shape than these toxic scam businesses like Uber or We.
WeWork's locations are wonderful, but if they want to start making money, they need to start charging more or lower the costs. Won't people just move to cheaper offices then?
really had the opposite experience. To me they feel like a neural net went rogue and scanned through a billion pictures of "generic millenial apartment" and then turned it into workplaces. Every weworks place I've seen seems completely exchangeable and lacking any sort of character.
That's kind of the point. You get a consistent office environment in any wework
It might not be perfect, but in my experience it's way better than the average office (at least in London)
I strongly disagree. The ones I've been to are shoddily built and badly designed. Door handles break after a few months. There are gaps in walls between offices. And bathrooms have sinks that are borderline unusable because light fixtures are in the way. Sure, everything is new, so it feels kinda fresh and nice at a glance, but I can't imagine the spaces aging well. Or, they'll have to spend money overhauling the interiors every few years.
And that doesn't even touch on their branding and design choices, which, to me at least, don't even begin make up for the cheapo low-quality interiors.
E.g. The founder took a near 0% interest loan for 30M in 2006, raised VC capital, than paid it back in 2009 with the inflated share values.
Here’s Spotify’s complete financial history from its inception for example:
Access Denied You don't have permission to access "http://www.sec.gov/Archives/edgar/data/1533523/0001193125192... on this server.
Reference #18.6fae0017.1565800624.11173d06
Best. Short. Ever.
“Substantially all of our leases with our landlords are for terms that are significantly longer than the terms of our membership agreements with our members. The average length of the initial term of our U.S. leases is approximately 15 years, and our future undiscounted minimum lease cost payment obligations under signed operating and finance leases was $47.2 billion as of June 30, 2019.”
Not at all. We is a player in major markets that are populated by professional landlords that have been in this business for much longer than the founder of WeWorks has been alive and have seen it all before, dressed in different clothes. At the end of the day, the class A/B/C buildings as well as the lots they sit on and the air rights above them are real appreciating assets, while the tenants are just the revenue stream for opex.
For instance if WeWork goes down, there are still tenants that might want to stay in the building. That's a sensible place to start.
Alternatively though, WeWork is an easy way for companies to reduce their expenses during a recession.
And more layoffs mean more people trying to be freelancers, and doing things on their own, which creates a greater need for coworking spaces.
Does anyone know what the positives are of the company?
Oh you mean for the investors? Well money is dirty so it is best if you have less of it.
TLDR : Revenue - $1.535B | Costs - $2.904B | Loss - $1.369B
Edit: Yes, spend is better verb here than lose...thanks
I didn't buy it to my loss until only recently.
From the Company Loans Section:
In May 2013 and February 2014, we issued loans to WE Holdings LLC for $10.4 million (interest rate 0.2% per year; maturity May 30, 2016) and $15.0 million (interest rate 0.2% per year; maturity February 4, 2017), respectively. The loans were collateralized by shares of our capital stock held by We Holdings LLC, and each loan provided us with the option to purchase a number of these shares in full settlement of the applicable loan. We exercised these options in May 2016, purchasing and retiring an aggregate of 8,398,670 shares of our capital stock in full settlement of the loans.
In June 2016, we issued a loan to Adam totaling $7.0 million (interest rate of 0.64% per year; maturity June 14, 2019). In November 2017, Adam repaid the loan in full, including $0.1 million in interest, in cash.
Then from the Properties Leased to The We Company section:
During the years ended December 31, 2016, 2017 and 2018, we made cash payments totaling $3.1 million, $5.6 million and $8.0 million to the [CEO] under these leases.
Sounds like they are straight up loaning the CEO money so he can buy buildings and lease them back to the We Company. Bonkers.
From the Personal Loans section:
Adam currently has a line of credit of up to $500 million with UBS AG, Stamford Branch, JPMorgan Chase Bank, N.A. and Credit Suisse AG, New York Branch, of which approximately $380 million principal amount was outstanding as of July 31, 2019. The line of credit is secured by a pledge of approximately [BLANK] shares of our Class B common stock beneficially owned by Adam.
From the WPI Fund and ARK section:
We have entered into operating lease agreements with [the CEO] in which the WPI Fund (or, following the ARK/WPI combination, other real estate acquisition vehicles managed or sponsored by ARK) have an interest, on what we believe to be commercially reasonable terms no less favorable to us than could have been obtained from unaffiliated third parties. During the years ended December 31, 2016 and 2017, no rent expense or cash payments had been recognized by us relating to these agreements as we were not yet occupying any properties owned by these entities and had not paid any rent under these leases. During the year ended December 31, 2018 and the six months ended June 30, 2019, we made cash payments totaling $0.0 million and $0.6 million, respectively, and we recognized
From Personal Real Estate Transactions section:
With respect to the six properties not currently occupied by the Company, in connection with exercising its option to acquire a property in the first year of the management agreement, the ARK Manager and the Company may determine that a subsidiary of the Company should occupy any of such properties to the extent the ARK Manager and the Company agree on terms of any such occupancy agreement.
And in this case, the emperor appears to have no clothes. Good luck everyone. See ya in the breadlines!
The S-1 document has that info, and it has been released. There are a lot of red flags, such as a $2 spend for each $1 made.
I think they overdid it with the branding. Snap from SnapChat was already pretty short, but it is at least a verb and not a pronoun.
They run co-working and remote office locations. Perfect place to be if you're a remote worker needing on office or a small firm or start-up, hence the HN discussion and interest.
I wouldn’t consider being an investor in this company unless class B or C shares are publicly traded. Just look at the underperformance of GOOGL, SNAP, and SQ for reasons why not to be an investor here.
This stock went from $54 in Aug 2004 to $1196 today. Just for me to understand, is that "underperformance"? Is your claim that other stocks that have a traditional voting structure have outperformed GOOGL over the same time period or that GOOGL itself could have achieved much higher highs, say 30x instead of a mere 22x? Either way, those are tall claims and it's on you to prove it.
Stocks are ultimately worth a function of 4 things:
1) The value of their future dividends,
2) The value of their future stock buybacks,
3) The value of remaining book assets at company liquidation/bankruptcy,
or 4) the value per share everyone will receive if the company is bought out.
People can invest for non-monetary reasons: for example wanting to invest in Tesla because they just want electric cars to be a thing or investing in Google because they just love certain aspects of the company. However, at late-stage investing, investments are based on fiduciary incentives from these 4 returns of capital. Absent those 4 methods of returning capital, stock investing is a pyramid scheme.
Amazon shareholders can eventually collude together to vote for more returns of capital if they ever stop believing in Jeff Bezos’s above average performance in returning increasingly higher amounts of free cash flow. This is about as likely as it is for Buffet’s BRK.A/BRK.B (highly unlikely due to his high profile but not impossible if everything were to go south).
A buyout of Alphabet is unlikely at this point because only 3 companies have a higher market cap now. Tech companies don’t have much book value to liquidate. They can potentially choose to not to ever give a dividend and they can keep doing share buybacks in joke quantities —- and pension funds can’t potentially vote to change that.
This is my theory for these stock performance discrepancies and I’d be happy to hear others thoughts on this.
Lets say they were publicly traded, and not held for institutions, VCs, and fonders.
Would you as a person, buying Class B shares ever buy enough that the 20 votes per share matter? Why does the number of votes to you matter, unless you sank a few hundred million into the company (at which point, you would be an institution or vc), your votes wouldn't matter with any of the classes.
Google is the 4th biggest company in the world. Don’t need to even go there.
Snap growth was already stalling when they IPOed and then Facebook especially Instagram really went after them.