WeWork Cos. released the financial paperwork for its planned initial public offering of stock last week.
In many respects, it is what people thought it was: An office subleasing company on steroids. Its complicated corporate structure is topped by Chief Executive Adam Neumann, who has unusual measures of control or influence.
WeWork is growing swiftly and posting heavy losses. What was surprising is the numbers behind those losses. Last year, WeWork's filing shows, it recorded $1.7 billion in revenue from rent and service fees charged to people and companies subleasing office space from the company. That was double the revenue from tenants in 2017, and the revenue figure is on pace to increase about the same rate this year.
That is the kind of growth that gets investors justifiably excited, and they may be willing to overlook eye-watering losses as WeWork grabs for bigger chunks of the huge but fragmented commercial leasing market.
But look at how WeWork is generating its losses. Last year in buildings that WeWork had up and running, the company recorded $1.5 billion in lease payments to landlords, plus costs for employees, utilities, real estate taxes, office cleaning, repairs and other expenses. That means WeWork's revenue from operational office locations is scarcely higher than expenses for those locations — not including anything the company is paying for fixing new locations or costs for employees not working on operating office buildings.
It's standard practice for WeWork and other office-leasing companies to give tenants breaks on rent for a while, and no doubt that is driving up WeWork's costs for its workspace locations related to the revenue it's bringing in from the buildings. But WeWork's numbers belie the notion that the company is simply incurring losses for funding its expansion.
Revenue for tenants is declining
The company right now is eking out a slim base profit simply from the revenue it takes in minus the bare minimum costs to run its buildings. The revenue for each WeWork tenant also is declining. WeWork attributes the decline to its expansion into countries with lower standard prices for tenants and to discounts it dangles to persuade tenants to sign longer-term subleases.
The financial disclosures make it clear that WeWork — which, it should be said, is a commerce office-leasing company and not truly a tech company — shares the hallmarks of Uber Technologies Inc. and other high-profile young tech startups.