Commoditising community: The We Company Juggernaut

By Wadzi Katsidzira and Chiedza Chikoto

The headlines

  • WeCompany is a multi brand sharing economy group, anchored by WeWork the coworking space giant founded in New York in 2011. The company also includes WeGrow, operating schools and WeLive, operating shared housing.
  • The company is growing at a breakneck speed, albeit unprofitably. In 2018, WeCompany had revenues of $1.8 billion but a net loss of $1.9 billion, raising questions about the viability and sustainability of the company’s business model.
  • The company announced in April 2019 that it had filed an IPO application with the SEC, joining the wave of “unicorn start ups” racing to tap into the public markets in 2019[1].

From one site to hundreds

In 2011, Miguel McKelvey, Adam Neumann and Rebekah Neumann opened their first WeWork location in New York. They wanted to create a co-working space that offered more than just great amenities. Their vision was workspaces that offered a sense of belonging and a feel for community for freelancers, remote workers, start-ups and entrepreneurs. Since then, WeWork has grown into a global behemoth with 702 spaces in 121 cities. You can find WeWork offices in every major city in the world playing host to individuals, small start ups, and large corporations alike. The company is now the largest provider of office space in New York and London and counts companies like the global banking giant HSBC among its tenants. The company reported in June 2019 that 4 out of 10 of it’s almost half a million members worldwide were now from larger companies[2].

Communal customisation

WeWork – the main WeCompany entity that operates the co-working spaces – has business model that is based on leasing large commercial space in attractive business districts, overhaul the fitouts to make them more airy, modern and millennial friendly and then selling memberships to tenants on shorter term leases as short as one day. WeWork spaces include beer on tap, lively communal spaces, padded phone booths and multiple configurations for working spaces, from open plan workstations, to dedicated offices for one or more people.

Evolving away from being asset light

As is typical of its new network economy start ups such as Uber and AirBnB, WeWork’s balance sheet is asset light as the company does not own any properties itself, instead entering into long term leases with property owners. However, the company’s 2018 bond prospectus revealed that the nominal value of its operating lease payments was more than $18 billion[3]. Given it is locked into long term leases, and in turn enters into shorter term leases, the company is exposed to timing risk from adverse movements in the short term rental market.

Perhaps recognising the inherent risk in its model, in May 2019 WeWork acquired a stake in a property investment vehicle, Ark Fund co-owned by WeWork CEO and co-founder Adam Neumann. While the ownership of Ark Fund presents a potential conflict of interest issues of its own that will need to be handled delicately, it does mean that in future, WeWork will own some properties. However, the structuring of the investment in Ark Fund, is such that it will be off balance sheet.

Expansion of services

In January 2019, WeWork officially changed its name to WeCompany signalling a clear intention in the new year and beyond to move beyond property with its concept of commoditised community and shared spaces. In addition to co-working spaces, the group now includes WeGrow which focuses on education and operates a school in Manhattan. Through WeLive, WeCompany offers shared living spaces in the United States and United Kingdom, and is also exploring fitness centres. The WeCompany’s mission is, “to elevate the world’s consciousness.” Across these seemingly disparate sectors of operation, office space, housing and schools, the group is ultimately banking on a customer desire to buy a slice of community without all the drawbacks of being held down. The concept that ties all it’s companies “communal customisation”, that is you can have access to a slice of the best of what you want, and it can also align with the best of what those around you also want.

Fast revenue growth, big losses

The company is growing at a breakneck speed and announced 2018 revenues of $1.8 billion, and net losses of $1.9 billion[4]. The revenue growth is driven by opening new sites and enrolling new members. The key drivers of costs for the company are “growth and new market development expenses” i.e. the price of scouting and fitting out new sites, and “sales and marketing expenses” to acquire new members. In 2018, these expenditure items were $477 million and $379 million respectively, up a staggering 164% from the prior year’s figures[5]. The company’s EBITDA has been consistently negative since launching. Although WeWork reports its own measure called “Community Adjusted EBITDA,” and by this metric the company is profitable. WeWork, launched the financial metric Community Adjusted EBITDA in April 2018, and it is calculated by stripping employee, sales, marketing and new market development expenses from conventional EBITDA, to arrive at what is conveniently a positive financial metric[6]. In other words, WeWork removes the costs of growing profits, from its calculation of profitability. A comparison of WeWork’s EBITDA and Community Adjusted EBITDA is provided in figure 1 below:

Source: Axios.com[7]

Figure 1: WeWork EBITDA vs “Community Adjusted EBITDA” Q1 2017 – Q4 2018

Fundraising machine

Since launching in 2011, WeCompany has successfully raised $14.2 billion in debt and equity funding. The company has successfully closed seven rounds of equity investment, although the bulk of the capital it has received has been debt[8].

Source: Stanford Venture Capital Initiative

Figure 2: WeCompany equity rounds

In January 2019, WeWork received a $2 billion investment from SoftBank through its $100 billion Vision Fund that makes large investments in bold technology ideas that are transforming the future. SoftBank had initially announced an intention to invest $16 billion in the company, thereby increasing it’s ownership stake to a controlling one, however, this investment was scaled back to $2 billion. Nonetheless, WeCompany was valued at an astounding $47 billion.

In April 2019, WeCompany announced that in December 2018, it had confidentially filed an application with the US Securities and Exchange Commission for an Initial Public Offering (IPO). If the IPO is completed as expected in2019, WeCompany could be one of the biggest companies to list on the stock market this year. Although given the outstanding questions about the viability of its business model and the lacklustre IPOs of fellow unicorns Lyft and Uber, it remains to be seen if the gloss will remain on We Company!


[1] WeCompany joins Lyft, Uber and Slack which all either listed publicly or announced intentions to IPO in 2019

[2] Financial Times, 10 April 2019, https://www.ft.com/content/cf435848-5b83-11e9-939a-341f5ada9d40

[3] Financial Times, 15 May 2019, https://www.ft.com/content/03b8547c-772f-11e9-be7d-6d846537acab

[4] https://www.axios.com/wework-doubled-revenue-loss-2018-eec75ff5-6466-4f20-9436-2f9a983db21b.html

[5] Financial Times, 10 April 2019, https://www.ft.com/content/cf435848-5b83-11e9-939a-341f5ada9d40

[6] Bloomberg, 27 April 2018, https://www.bloomberg.com/opinion/articles/2018-04-27/wework-accounts-for-consciousness

[7] https://www.axios.com/wework-doubled-revenue-loss-2018-eec75ff5-6466-4f20-9436-2f9a983db21b.html

[8] https://craft.co/wework/metrics

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *