Financial Statement Analysis & Valuation Dilemma of WeWork (The We Company)
| Case Code: FINC174 Case Length: 16 Pages Period: - Pub Date: 2021 Teaching Note: Available |
Price: Rs.400 Organization: WeWork Industry: - Countries: United States Themes: Valuation, Financial strategy, Corporate Governance, Business Ethics |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Business model
WeWork offered shared or coworking spaces to entrepreneurs, start-ups, freelancers, or just about any person or entity. It designed and built physical and virtual shared spaces and worked around a Space-As-A-Service (SPaaS) business model. It purchased or rented real estate space in an office building and then transformed it into smaller offices with facilities like cafés and common areas. It later rented out these spaces. Though the rent was a bit high for the firms, the space came with fully loaded facilities which would otherwise have been very expensive and time consuming for the firms to set up in the initial stages..
SPaaS Industry
Changing business requirements that required flexible and office spaces that could be set up quickly highlighted the importance of the Space as a Service (SPaaS) industry. Co-working became mainstream not only in the developed world, but also in many emerging countries. SpaceIQ, a US based data-driven platform that had digitized the workplace real estate market, estimated the global market value of co-working at $26 bn in 2019. The industry had grown at an average annual growth rate of 23% since 2010 and accounted for more than 30% of new total office tenants since 2017. According to SpaceIQ, the co-working spaces globally were expected to reach 50,000 by the end of 2020..
IPO Hype and Reality
The WeWork business model and its growth promise attracted investment from global majors. Softbank, JP Morgan, Benchmark. and Neumann were the major investors in the company. In January 2019, WeWork raised around $1 billion in its Series H round led by SoftBank. This new round of funding brought the company’s total funding to $12.8 billion and the valuation of the company went up to $47 billion. In January 2019, in preparation for its Initial Public Offering (IPO), the company decided to change the legal name of WeWork to The We Company..
Financial Performance
According to the financials submitted to SEC by WeWork for the date ending June 30, 2019, WeWork showed a good improvement on most of the constituents. WeWork’s revenues went up from $886 million for the financial year 2017 to $1821.7 million for the financial year 2018 and to $1535.4 million for the 6 months ending June 2019. The revenues constituted related party transactions to the extent of $0.365 million for the year 2017 and a whopping $21.982 million for the year 2018..
Questionable Related Party Transactions
WeWork’s S-1 filing gave more details of related party transactions that drew the attention of analysts. On March 21, 2019, WeWork entered into an agreement with an affiliate of a principal stockholder with representation on WeWork’s board of directors that was also the 99.99% equity owner in the Creator Fund..
Challenges Ahead
WeWork’s S-1 filing with the SEC in August 2019 attracted criticism from analysts and experts on the complex corporate structure of the company, its questionable corporate governance and business practices, poor financial projections, and hyped-up language..
Exhibits
Exhibit I: List of Acquisitions by WeWork
Exhibit II: WeWork Funding Rounds
Exhibit III: WeWork Income statement, June 30, 2019
Exhibit IV: WeWork Balance Sheet as on June 30, 2019
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