WeWork might not be the largest IPO of 2019, but it is easily the most ridiculous, and the most dangerous.
At least, Uber and other recent big-money IPO’s offered some legitimate innovation in their business models even if their valuations were far too high. WeWork has copied an old business model, i.e. office leasing, slapped some tech lingo on it, and suckered venture capital investors into valuing the firm at more than 10x its nearest competitor.
WeWork has ~20% less usable square feet of office space than IWG, but almost five times as many operating lease obligations at the end of 2018. Two main factors account for WeWork’s massive amount of operating lease obligations compared to IWG:IWG’s locations are spread across over 1,000 cities all over the world. WeWork, on the other hand, operates in just 111 cities, and its S-1 reveals that the majority of its revenue comes from New York , San Francisco, Los Angeles, Seattle, Washington D.C.
IWG has managed to survive this recession risk by not locking itself into extremely long leases, diversifying its business geographically, and inserting provisions into many of its leases that allow for early termination, reduced rates, or other loss-minimizing provisions in the case of a downturn. WeWork, on the other hand, does not take any of these precautions.WeWork’s high-risk strategy has allowed the company to grow rapidly during the current economic expansion.
The company’s dual-class share structure means public investors will have no recourse to stop the self-dealing and personal profiteering that has marked Neumann’s tenure as CEO to date.
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