The Wall Street Journal on grandiose dreams of WeWork founder Adam Neumann

WeWork has attracted scrutiny over its unusual business model and governance structure, but the company’s strangeness seems to start at the top with CEO and co-founder Adam Neumann, according to a remarkable profile in The Wall Street Journal.

Neumann has expressed interest in becoming Israel’s prime minister and the president of the world, living forever, and becoming the world’s first trillionaire, the Journal reported, citing people familiar with the situation. He is also said to have told employees that the company could one day end world hunger.

~ CNBC, "WeWork's Adam Neumann wants to live forever, be king of the world and the first trillionaire, says report," September 18, 2019

Scott Galloway on the cult of personality at WeWork

WeWork's prospectus has a dedication (no joke): "We dedicate this to the power of We — greater than any one of us, but inside each of us." Pretty sure Jim Jones had t-shirts printed up with this inspiring missive. Speaking of idolatry, "Adam" (as in Neumann) is mentioned 169 times, vs. an average of 25 mentions for founder/CEOs in other unicorn prospectuses. Uber’s CEO, Dara Khosrowshahi, is mentioned 29 times in their prospectus. Granted, "Adam" is super dreamy, in sort of an Argentinian polo player way (he's Israeli). But he's not 6x dreamier than Dara, who has a whole “Omar Sharif, if he went to Brown” thing going on. But I digress. We's mission is "to elevate the world's consciousness." Maybe, but it's clear the mission of the prospectus is to dampen our consciousness ahead of the sh*tshow that is "The Story of Us: We."

~ Scott Galloway, "WeWTF," No Mercy / No Malice blog, August 16, 2019

Grant's tees up WeWork IPO

The public debut of The We Company, parent of co-working outfit WeWork Cos., Inc. draws closer.  Over the weekend, Reuters reported that J.P. Morgan Chase & Co. has secured “the pole position” to lead the offering. That follows a July 23 report from The Wall Street Journal that the IPO could come as soon as September, earlier than had been widely expected. Per The Journal, that expedited timeline accompanies a sense of urgency: “One reason for the September launch target is executives at WeWork are worried that the good times won’t last, with the U.S. stock market trading near records.”

The stakes are high. According to a Bloomberg dispatch today, WeWork is set to raise up to $6 billion in a two-part debt offering, but that deal comes with a caveat: “banks will have to make good on their commitments only if at least $3 billion is raised” in the IPO.  The company was most recently valued at $47 billion in a private fundraising round led by SoftBank Group Corp.

With that backdrop in mind, let’s take a stroll through WeWork’s most recently published audited financial results (Ernst & Young LLP did the honors) recently obtained by Grant’s. Despite the company’s imminent public debut, accessing the data is not easy.  The documents are only available online, and printing is disabled.

Each page is stamped “confidential,” with the recipient’s name, along with the date and time of publication.  Unlike most web-based financial statements such as those domiciled on sec.gov, searching for specific terms is disabled. Now, to the figures. In the quarter ended March 31, revenues footed to $728 million, more than doubling year-over-year from $342 million in first quarter 2018.  Similarly, total WeWork memberships rose to 371,000 in the fourth quarter, compared to 174,000 at year-end 2017.

Unfortunately, increased scale has yet to provide any relief to the torrent of red ink. So-called community operating expenses (“exclusive of depreciation and amortization”) rose at a similar clip, doubling to $581.5 million in the first quarter from $288 million, while WeWork’s operating loss jumped to $637 million from $296 million year-over-year.  Sales and marketing expense rose to $151 million, or 21% of revenues, from $63 million (19% of revenues) in the year ago period.

Meanwhile, community-adjusted Ebitda (or, adjusted adjusted adjusted Ebitda), WeWork’s signature  metric, rose to $169.5 million in the first quarter from $95 million year-over-year.  That gain failed to keep pace with the jump in revenues, as the “margin” declined to 27% from 29.2%.

While the financials provide little fodder for optimism, the company looks for other ways to impress investors. On July 30, CNBC reported WeWork was in talks to acquire startup SpaceIQ, which sells software to aid the efficient use of office space, a move which “could help WeWork convince Wall Street that it’s at least somewhat of a technology company.”

The bond market seems to need some persuasion. Single-B-plus-rated WeWork’s senior unsecured 7 7/8 notes due 2025 last changed hands at 96.5 cents, for a 8.66% yield-to-worst and 712 basis point spread to Treasurys. That’s well above the 491 basis points at issuance.  By comparison, the Bloomberg Barclays High Yield Index has seen its option-adjusted spread widen by just 63 basis points over that period, to 397 basis points at Friday’s close.

Meanwhile, CEO Adam Neumann is ringing the register. On Thursday, The Real Deal reported that Neumann “is putting a property that he owns as a personal investment in Greenwich Village up for sale on the open market... The 11-story building at 88 University is place is almost fully leased to WeWork and is about to come to market with an asking price north of $110 million.”  That follows the July 18 bulletin from The Wall Street Journal that the WeWork boss has already cashed out more than $700 million from the company, news that Neumann’s associates downplayed by noting that “Neumann’s borrowings against some of his WeWork shares indicate that he is bullish on the company’s long-term prospects.”

~ Almost Daily Grant's , August 5, 2019