WeWork’s IPO Is the Beginning of the End for This Unicorn

0 | By Shah Gilani

The WeWork company story is a convoluted one, especially when it comes to its management, its funding, its business model, its accounting, and now its attempts to go public.

As an investor, even as a trader, I don’t buy into stocks of companies which are so convoluted that it’s hard to make sense of what they’re really up to.

The We Company, as it’s now known, is the perfect case in point.
From why it changed its name to how it’s being valued right before its proposed IPO, are just two reasons I wouldn’t touch this company’s stock with a ten-foot pole. Except to short it as soon as I can.

Here’s why…

WeWork Will Need More than Luck to Beat its Unicorn Status

The basic premise of the company formerly known as WeWork is to lease office space and rent it out, mostly on a shared-space kind of model. Think of it as a new age, sharing economy kind of rental model.

WeWork, which changed its name to We Company in January of this year, and paid the owner of the We Company’s name, We Holdings company, which was formed and is owned by WeWork’s founder Adam Neumann and additional WeWork founders, $5.9 million to “license” the new name We Company.

How convoluted is that, how greedy is that?

It was so egregious, in fact, that by September Neumann reversed his greedy gambit and returned the $5.9 million license payment to the We Company and gave up the trademarks.

Yeah, he actually trademarked the word We when used with a company modifier, like the We Company, so he could get paid for licensing made up “We This and We That” names to the We Company.

That’s how greedy, egregious, and convoluted the old WeWork company and the new We Company’s founders are, led by Adam Neumann.

The company, which was recently expected to come to market with an IPO valuation of around $47 billion, was not only delayed, then rekindled, then delayed, now, maybe coming to market, maybe not, is coming, when it comes, with a valuation now expected to be maybe $20 billion, maybe $10 billion.

How convoluted is that?

It is what it is because at a $47 billion valuation, which I’ll come back to at the end of this article, investors balked at Neumann and company retaining all kinds of rights, especially voting rights and the right to have his wife succeed him, and for his “team” to decide what the company does and how it does it, which I guess includes licensing the company stuff its owners create to make additional money from.

Anyway, when would-be investors saw what a bunch of greedy grabbers the founders are after seeing the company’s S1 registration documents, We Company’s bankers scrambled to talk down the company’s valuation, so would-be investors wouldn’t run for the hills.

They ran anyway.

The fact that a company, based on the last round of private money investment with a $2 billion boost from Japan’s SoftBank, was worth $47 billion on paper, but is now worth less than half that, or even less than a quarter of that, based on would-be investors seeing under the hood of this hot mess, is about as convoluted as it gets.

But, not as convoluted as WeWork’s, I mean the We Company’s, accounting.

We Company is in the “unicorn” space as a multibillion-dollar company that loses money. That’s not smart, but at least investors think enough about the company to expect it to eventually turn a profit, since it’s in “growth” mode and it could make an investment in its stock worthwhile.

I say, good luck with that.

Making Sense out of We Company’s Financials Takes Some Luck Too

Without getting into the nitty gritty stuff that bothers me, suffice it to say that in the big picture the company looks like its generating a ton of cash, but that’s just cash in and out on the cash flow statement, and not relevant compared to non-GAAP accounting on the pro-forma income statement.

The monumental cash flow, which keeps growing, looks more like a juggling act than a solid footing for actual growth. Since the company’s revenues have been outstripped every year by its “administrative” costs, which is how the company describes its acquisition of lease contracts, it prefers to point to cash flow.

At more than $6 billion, an impressive number, cash flow looks to be flowing. But I question how much of that cash flow is a function of credits and deferred bills that must be paid eventually.

Accounting, for positives on cash flow statements such as “increase in trade and other payables” and deferred lease liabilities, to show tons of positive cash flow may be legal and smart accounting, but to my untrained eye, it’s convoluted.

I don’t know enough about accounting to know what I don’t know. I only know that if I can’t make sense of something, accounting-wise, I’m not going to touch it.

Add that apprehension to my questioning management’s motives, the company’s business model, and the private money valuation game that just backfired, and you might understand why I think We Company’s IPO, if it comes to market, may be the beginning of the end of what was a convoluted gambit from the get-go.

About that private money valuation game, I’ll rip the curtain back on that game on Friday.

Trust me, you don’t know what you don’t know.

Where to Invest to Invest if Not in Unicorns like WeWork

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By 2021 it’s predicted that eCommerce revenue will increase to $4.8 trillion, a 71% increase from 2018.

This growth is believed to be linked to the proliferation of 5G around the world.

This is the catalyst to a technological renaissance – opening the floodgates for an industry potentially worth up to $12 trillion – and YOUR opportunity at becoming one of America’s top earners.

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