Can WeWork's IPO Raise Enough Cash?

Summary

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WSJ Your Money Briefing: Can WeWork's IPO Raise Enough Cash?

Host: J.R. Whalen
Guest: Elliot Brown, Wall Street Journal reporter
Date: May 1, 2019

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Episode Overview

This episode examines WeWork’s confidential IPO filing and the immense financial pressures facing the office-sharing startup. With breakneck growth and correspondingly huge spending, the discussion centers on whether an IPO will be enough for WeWork to fuel its expansion or if the company will need even more outside investment to stay afloat.

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Key Discussion Points and Insights

Rapid Growth—And Massive Spending

• WeWork's Growth:

  • The company has rapidly expanded in the last nine years, especially in the past few, doubling its revenue annually.
  • This aggressive growth has been matched by equally aggressive spending.
  • "They've been really fast growing over the past nine years...doubling their revenue year. But sort of the other side of that is that they have also been spending an enormous amount of money and that has been going up just as fast as their revenue."
    —Elliot Brown [02:38]

• Major Expenses:

  • WeWork leases buildings for long terms (10–15 years), then spends heavily to refurbish and customize them.
  • Amenities like stylish offices and beer on tap increase upfront expenses.
  • "They will lease a building from a landlord for 10 years, 15 years, and then spend a decent amount of money renovating it...that's not cheap."
    —Elliot Brown [03:25]
  • Expenses are framed as “investment for the future” due to long-term leases—but require vast amounts of capital now.

WeWork’s Cash Burn and Needs

• Cash on Hand:
  • Reported having ~$6 billion at the end of Q1 (2019).
• Sustainability Concerns:
  • Analysts estimate current cash reserves could last until mid-2020 if spending continues at the present rate.
  • "If trends continue, how long will that last?...Bernstein took a look at that...it'll last through mid-2020...by 2026, WeWork will need something like $19 billion cumulatively. And that is an enormous amount of money."
    —Elliot Brown [04:09]

Why the IPO Matters—And Why It Might Not Be Enough

• IPO as a Cash Source:

  • Management hopes the IPO will fund much of its growth; otherwise, WeWork may need to continue raising debt or private equity.
  • The IPO is an "either or":
    • If investors believe in WeWork’s story and valuation, the IPO could yield a substantial war chest.
    • If not, WeWork will look elsewhere for funding.
  • "If investors don't bite on the IPO side, then they absolutely will need more funding from other sources."
    —Elliot Brown [05:00]

• Debt So Far:

  • WeWork has previously raised some capital through debt, but bonds have not performed especially well.

The IPO Filing: Secrecy and Surprise

• Filing Details:
  • WeWork filed confidentially for an IPO in December (announced May 2019).
  • The news came as a surprise to both journalists and investors.
  • "There had been rumors...but we never could track it down. Investors were caught off guard as well in the company."
    —Elliot Brown [05:46]

Timeline Remains Unclear

• No official or unofficial announcement yet on exactly when the IPO will go public.
• The company and analysts alike are still waiting on further details.

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Notable Quotes & Moments

• On WeWork’s Growth:

  • "When you keep doubling and suddenly you're a $2 billion-a-year revenue company, then you need to spend $2 billion a year to keep growing more."
    —Elliot Brown [02:56]

• On the Funding Conundrum:

  • "There are only so many places out in the world where you can actually find that much cash once you get that big."
    —Elliot Brown [02:58]

• On IPO Secrecy:

  • “They announced this sort of to the shock of reporters who cover them.”
    —Elliot Brown [06:00]

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Timestamps for Important Segments

• [02:38] Elliot Brown discusses WeWork’s rapid revenue growth and correspondingly huge spending.
• [03:25] Breakdown of WeWork’s major recurring expenses—long-term leases, expensive office renovations, amenities.
• [04:09] Analysis of WeWork's cash reserves and how long they might actually support operations.
• [05:00] How WeWork may fund its growth—debate on IPO effectiveness and alternative funding paths.
• [05:46] Surprise surrounding the confidential IPO filing and uncertainty about IPO timing.

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Tone and Language

The conversation is analytical but accessible, balancing financial rigor with clarity, making complex financial dynamics understandable for a broad audience.

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Summary Takeaway:
WeWork’s meteoric rise is matched only by its colossal cash burn. With an IPO on the horizon but uncertain prospects, the episode highlights the daunting scale of capital WeWork requires and the high-stakes gamble its investors and management are making. The core question remains: Can WeWork convince the public—or anyone—to bankroll its next phase?

Transcript

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[J.R. Whalen]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. Wall street wants to know how the office sharing company we work is is going to raise the cash necessary to grow at its current pace. We'll check in with Journal reporter Elliot Brown in a moment to get some details. First, these money and market stories you should know. Good news for your wallet Total compensation for American workers grew 0.7% from January through March as compared to the previous three months. Total compensation includes wages and benefits for civilian workers. Now wages and salaries account for about 70% of of total compensation, with health coverage, retirement benefits and paid leave filling out the rest. Another bit of good news. Workers compensation in recent quarters has risen faster than overall inflation. And Alaska Airlines is the big winner in the American Customer Satisfaction Index Travel report. About 13,000 travelers are surveyed for the report on things like airlines on time, arrivals and departures and baggage handling and cleanliness. Alaska came in first, and it bumped Southwest Airlines down to number two. The report blames Southwest dropped number two on the recent safety concerns surrounding the Boeing 737 Max jet. Southwest has grounded all 34 of its 737 Max aircraft through August. Now Southwest tied with JetBlue at number two on the list. The report also says overall customer satisfaction with airlines has trended upward. Delta, United, Frontier and Spirit Airlines all improved in their score in this year's report, though Frontier and Spirit still held the bottom two spots on the list. The Office sharing company WeWork announced this week that it filed confidentially for an IPO back in December. Now what has Wall Street's attention, though, is the amount of cash the company needs to raise to keep up with its spending ways. Wall Street Journal reporter Elliot Brown has the numbers and he's on the line with us. Elliot WeWork is an expensive business. It burned through more than $2.3 billion in 2018 alone. That's a lot for a startup, and it's been searching out for other resources for more cash.

[Elliot Brown]

Yeah, it's a pretty fascinating company. They've been really fast growing over the past nine years. They've been around, especially in the past few years. It's been doubling their reven year. But sort of the other side of that is that they have also been spending an enormous amount of money and that has been going up just as fast as their Revenue. So when you keep doubling and Suddenly you're a $2 billion a year revenue company, then you need to spend $2 billion a year to keep growing more. So there are only so many places out in the world where you can actually find that much cash once you get that big.

[J.R. Whalen]

Yeah. In fact, the revenue has doubled, as you point out in your story in both 2017 and 2018. They take that money and they reinvest it company. And like, among their biggest expenses are customer acquisition.

[Elliot Brown]

Yeah. What, what they do is it. It largely is going into sort of their main product, which is offices. And so they will lease a building from a landlord for 10 years, 15 years, and then spend a decent amount of money renovating it, sort of fitting it out with glassy offices and. And white subway tile and beer on tap. And that's not cheap. And so what they say is that it's a investment for the future because they get to have this lease for 10 or 15 years, but that doesn't mean that it's cheap. And so hence the need for more money as they keep growing.

[J.R. Whalen]

What has WeWork said about the cash it has on hand?

[Elliot Brown]

So they've said previously they had as of the first quarter, around 6 billion, which sounds like a lot, but. But then if you step back and sort of think, well, if trends continue, how long will that last? And so some analysts at Bernstein took a look at that, and the number they came up with is basically it'll last through mid-2020, and that means you're going to need a lot more cash after that. And so then they have this sort of, you know, everything is an estimate here, but they have this estimate that by 2026, WeWork will need something like 19 billion Livy cumulatively. And that is an enormous amount of money.

[J.R. Whalen]

And so in addition to the IPO to raise cash that way, like you said, they're seeking out more and more investment. The IPO will not replace seeking out investments, is that right?

[Elliot Brown]

Well, so it would be an either or if you did an ipo. And if investors are into the story and believe in the valuation, then, yes, the IPO would be the place that you'd get a bulk of that funding. You could also get debt from banks, which they've done a little of, and the bonds haven't performed terribly well because these are sort of debt in bond form. That said, if investors don't bite on the IPO side, then they absolutely will need more funding from other sources.

[J.R. Whalen]

Now they filed for an ipo. Is there any sort of timeline whether it's official or unofficial as to when the IPO may actually happen, that we don't know.

[Elliot Brown]

This really sort of caught us by surprise. There had been rumors that they were going to file or had filed, but we never could track it down. And investors were caught off guard as well in the company. So we're still just getting some basic information here. And they announced this sort of to the shock of reporters who cover them.

[J.R. Whalen]

All right. That's Wall Street Journal reporter Elliot Brown on the line with us from our San Francisco bureau. Elliot, thanks for coming on the show.

[Elliot Brown]

Thanks for having me.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for

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