WeWork's $47 Billion Paper Tower

There is a tower that is being built this week, and the tower is the paper: the WeWork headquarters in the clouds, the valuation that reached forty-seven billion dollars in January, the company that filed to go public on Wednesday, the S-1 that laid the numbers bare. The filing is the August 14 event: The We Company's prospectus, the losses that run to the billions, the founder who owns the trademark and the buildings, the model that rents long and sells short. The WeWork story is the August 2019 story, and the story is the lesson: the valuation that is a story before it is a business.

The WeWork filing is the subject of this article: what the S-1 shows, why the valuation is so high, and what the public markets will make of the model.

1. The Filing

The filing is the S-1, and the S-1 is the confession: the document that The We Company submitted to the Securities and Exchange Commission on the fourteenth of August, the prospectus that runs to the hundreds of pages, the numbers that were private and are now public, the story that must now survive the scrutiny. The filing is the August event: the company that was called WeWork and now calls itself The We Company, the 528 locations in 111 cities, the 527,000 memberships at the end of June, the growth that is printed in the revenue lines, the losses that are printed below them.

The filing is also the moment: the IPO that has been expected for years, the roadshow that will come in the autumn, the bankers at JPMorgan and Goldman Sachs and Morgan Stanley who will sell the shares, the valuation that will be tested by the market. The filing is the 2019 lesson: the private company that finally opens the books, the numbers that speak louder than the narrative, the truth that arrives with the paperwork. The filing that came this week was the beginning, and the beginning was the exposure.

2. The Valuation

The valuation is the number, and the number is the forty-seven billion: the price that SoftBank put on the company in January, the round that made WeWork one of the most valuable startups in the world, the figure that is larger than the values of the public office giants put together, the sum that the market must now weigh. The valuation is the January math: the forty-seven billion against the revenue of one point eight billion, the multiple that is steeper than the comparable companies, the premium that is paid for the growth and the story.

The valuation is also the question: the reports that the IPO will come in lower, the range that is whispered at twenty to thirty billion, the discount that the public markets are expected to demand. The valuation is the 2019 lesson: the private rounds that set the marks, the public markets that reset them, the gap between the story and the price. The valuation that was set in January was the target, and the target was the test.

3. The Losses

The losses are the ledger, and the ledger is the red: the one point six billion that the company lost in 2018, the six hundred ninety million lost in the first half of this year, the revenue that grew to one point eight billion and then one point five four billion in the half, the gap that never closes. The losses are the S-1 numbers: the money that is spent to open the locations, the growth that is bought with the cash, the losses that grow with the revenue, the burn that the IPO is meant to feed.

The losses are also the frame: the company that points to the adjusted metrics, the "community adjusted EBITDA" that turns the red into the black, the measure that excludes the costs of the growth, the accounting that is meant to flatter. The losses are the 2019 lesson: the metrics that are chosen to tell the story, the numbers that must be read with the skepticism, the burn that is real no matter the framing. The losses that the filing revealed were the truth, and the truth was the risk.

4. The Founder

The founder is the Adam Neumann, and the Neumann is the center: the co-founder and chief executive who built the company in his image, the man who named the business after the feeling, the mission to elevate the world's consciousness, the vision that is the "we" of the world's largest community, the figure who dominates the prospectus and the culture. The founder is the August focus: the chief executive who is the brand, the stock structure that gives him the control, the super-voting shares that keep the power, the board that he shaped, the key man risk that the filing lays bare.

The founder is also the concentration: the company that is inseparable from the man, the succession that is not planned, the bet that the vision survives the founder. The founder is the 2019 lesson: the startup that is the extension of the personality, the governance that is built around one person, the question that the market will ask. The founder who built the company was the story, and the story was the risk.

5. The Conflicts

The conflicts are the related parties, and the related parties are the red flags: the buildings that the founder bought and the company leased back, the properties that changed hands between the man and the business, the deals that the prospectus disclosed in detail. The conflicts are the S-1 disclosures: the "We" trademark that Neumann owned personally and sold to the company for five point nine million, the loans that the founder took against his own stock, the money that is owed and the shares that are pledged.

The conflicts are also the governance: the deals that look like self-dealing, the lawyers who will mine the disclosures, the investors who will read the fine print. The conflicts are the 2019 lesson: the related party transactions that must be questioned, the governance that must be beyond reproach, the scrutiny that the public markets bring. The conflicts that the filing revealed were the stains, and the stains were the doubt.

6. The Model

The model is the arbitrage, and the arbitrage is the lease: the company that signs the long leases, the fifteen year commitments that it makes to the landlords, the short memberships that it sells to the tenants, the months that the members can leave, the years that the company must pay. The model is the August exposure: the rent that is owed in the downturn, the memberships that vanish in the downturn, the mismatch that is the heart of the business, the risk that is the opposite of the flexibility that is sold.

The model is also the cycle: the expansion that is funded by the losses, the locations that open before the demand, the occupancy that must be filled, the economy that will test the arbitrage. The model is the 2019 lesson: the spread that works in the boom, the structure that is fragile in the bust, the co-working that is real estate wearing a tech costume. The model that built the company was the bet, and the bet was the cycle.

7. The Investor

The investor is the SoftBank, and the SoftBank is the fuel: the Japanese conglomerate that poured more than ten billion dollars into the company, the rounds that started in 2017 and continued through January, the Vision Fund that wrote the biggest checks, the Masayoshi Son who saw the company as the next Alibaba. The investor is the August reality: the SoftBank that is the largest shareholder, the capital that is patient and impatient at once, the stakes that the fund must defend.

The investor is also the pressure: the Vision Fund that needs the exits, the IPO that must return the capital, the marks that must be defended, the narrative that the fund has bet on. The investor is the 2019 lesson: the capital that demands the growth, the valuations that are set by the few, the public market that is the final judge. The investor that funded the tower was the foundation, and the foundation was the bet.

The numbers are also the mirror, and the mirror is the market: the We Company that filed with the billions in losses, the investors who had valued it at the forty-seven billion, the analysts who started to do the math, the comparison with the listed rivals that made the valuation look fragile. The mirror is the scrutiny: the coverage that multiplied, the questions that sharpened, the underwriters who had to sell the story, the institutions that had to believe it, the roadshow that would put the claim to the test. The mirror is the moment: the summer of 2019 when the private market's confidence met the public market's questions, the gap between the narrative and the numbers, the distance between the forty-seven billion and the fundamentals.

The mirror is also the lesson, and the lesson is the discipline: the valuations that must be defended, the stories that must survive the data, the governance that is examined in the prospectus, the losses that cannot be hidden in the fine print. The mirror is the August 2019 lesson: the company that grew on vision, the filing that asked the market to pay for it, the scrutiny that followed the paperwork. The mirror that was held up was the test, and the test was beginning.

8. The Lesson

The lesson is the fundamentals, and the fundamentals are the floor: the revenue that is real and the losses that are real, the valuation that must rest on the cash flows, the story that cannot outrun the math for long. The lesson is the August 2019 meaning: the private markets that priced the narrative, the public markets that will price the numbers, the moment when the two must meet. The lesson is the practice: the governance that must be clean, the conflicts that must be avoided, the metrics that must be honest, the discipline that the public markets demand.

The lesson is also the perspective: the companies that are built on the stories, the valuations that are set by the believers, the gravity that is the earnings report. The WeWork filing is the August 2019 story, and the story is the lesson: the paper tower that will be tested by the market, the model that will be judged by the cycle, the founder who will be judged by the board. The S-1 is filed, and the reckoning is scheduled.

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