WeWork revenue and losses surge in first results

WeWork, the fast-growing co-working company gobbling up commercial office leases, has said its second-quarter sales more than doubled from a year earlier as it added new members at a quickening pace, but losses also mounted.

The company has significant commercial property interests in Dublin, where it is the anchor tenant in the old Central Bank building.

WeWork is to take space across eight floors of the building, which is being redeveloped by US real estate group Hines and Hong Kong-based Peterson Group.

In its first release of financial results, the privately-held firm said total revenue rose to $421.6 million (€370 million) from $198.3 million in the year-ago quarter as memberships jumped to 268,000 at the end of June from 128,000 a year earlier.

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Net losses jumped to $723 million (€634 million) over the second half of 2018 from $154 million a year earlier.

Occupancy rates at locations increased six percentage points from last year’s second quarter to 84 per cent. Operating margins, stripping out expenses, rose to 28 per cent from 26 per cent, the New York-based company said.

Chief financial officer Artie Minson said WeWork has a mismatch in its profit and loss statement because revenues from sites that will open later this year and in early 2019 lag months behind expenditures made now.

“We incur the expense today and the revenue and the operating margin of those buildings will come on next year,” he said.

Mr Minson said that if revenues based on June figures were extrapolated over a full year, WeWork would have a “run rate” of $1.8 billion and is poised to surpass a pace of $2.3 billion by the end of the year.

WeWork provides office space in settings where services are shared for individuals to companies with more than 1,000 people, a segment that now accounts for a quarter of its revenue.

Brokerage Cushman & Wakefield said WeWork was on the verge of taking over JPMorgan as the largest occupier of office space in New York.

Capital expenditure

WeWork said it had reduced capital expenditures through steps such as a 20 per cent cut in the cost per desk, or space one member occupies. This showed margins could be improved, it said.

Cash and commitments of about $4 billion were available at the end of June. This included $500 million recently raised in China, a $1 billion subordinated convertible debt commitment from major investor SoftBank Group and $600 million in prior commitments from SoftBank.

News of the debt was announced on Thursday.

Some cash burn can be expected with any company growing at a blazing clip, said Alex Snyder, a senior analyst at real estate-focused Center Investment Management LLC in Philadelphia.

Expenditure often outstrips revenue to build a business that attempts to create massive value, said Snyder, noting that Amazon.com did not turn a profit for years.

“All of this is to build the platform that eventually should allow them to make far more than if they didn’t spend so much up front,” he said, while cautioning the strategy can also go wrong.

If a company stumbles on such an enormous build-out it would be like tripping while in full sprint, he said. “The fall is likely to hurt.”

WeWork has raised $8.1 billion from 12 funding rounds, according to website Crunchbase, more than half from SoftBank, in addition to $702 million in bonds whose sale in April forced the company to divulge its results because the security is public. – Reuters