Initial Public Offerings (IPOs) are by their nature a risky gamble. For the company, it involves exposing itself to a whole new level of public scrutiny. For the investor, it means taking a chance on a fairly unknown quantity.
So, any IPO is a risk. But the WeWork IPO is a different level of strange. The company seems to many like a disaster waiting to happen.
Who Are WeWork
WeWork is being treated like any great new tech unicorn. But in reality, they are a real estate company.
WeWork provides workspaces for individuals and companies in cities around the country. They can customize spaces or rent offices temporarily, and brag on their website about the high profile of their clientele:
WeWork is changing the way people and companies work. Spanning one-third of the Fortune 500 to grassroot nonprofits, our members are empowering employees, fueling innovation, and uplifting communities.
But the hype about WeWork is way out of proportion to the reality. Though the company had just $1.8 billion in sales last year, and lost over $900 million in the first half of this year, analysts still gave it a valuation of $47 billion. That prompted Brett Arends at MarketWatch to argue that if you’re going to make any bet on WeWork, it should be betting on failure.
Romantic, But Not Idyllic
Even despite the criticism, WeWork continues to promote a romantic vision of itself. In its IPO paperwork, the company claimed:
“Our mission is to elevate the world’s consciousness. Philosophically, we believe in bringing comfort and happiness to the workplace.”
Even if they succeed in bringing comfort and happiness to the workplace, they’ll need to bring both to their investors, too, for the IPO to be a success. WeWork is being treated as a unicorn in the same class as Uber and Lyft. But the company has nowhere near the exposure of the two ride sharing services, neither of whom has seen much Wall Street success since their debuts earlier this year.
Moreover, there are some questions about the business practices of the company that views itself in such a romantic light. The founder, Adam Neumann, has sold interest in WeWork multiple times, and taken loans from the company itself. None of that is illegal, but that, coupled with the complex ownership structure in place for the company, suggests that while the vision my be romantic, the reality is as practical and capitalistic as anyone else.
If you buy WeWork shares, you're actually buying shares in a company that owns a company that owns another company in a partnership with some WeWork executives, which owns a WeWork holding company that owns all WeWork's businesses. pic.twitter.com/2eYTTbgrFl
— Tom Gara (@tomgara) August 14, 2019
Even in spite of this, WeWork could surprise everyone and be a success. But there are significant warning signs that set it apart from other tech IPOs, many of which have already struggled this year without such apprehension.