Unpacking WeWork’s Latest Financial Results

Morning Markets: WeWork’s financials didn’t radically change in Q3. That’s a problem.

How fast can WeWork turn its business around? Unsurprisingly given the timing of its pulled IPO (Sept. 30), the company wasn’t able to materially change the outline of its financial progress in the third quarter. That fact gives us a quarterly-window into the company’s old, high-burn growth model that brought it capital and acclaim at first and derision later.

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According to the Wall Street Journal, WeWork’s revenue expanded by 94 percent on a year-over-year basis in Q3 2019 to $934 million. That’s a good result. On the other side of the coin, WeWork lost $1.25 billion on a net basis in the same quarter. The Journal also noted that the documents it reviewed detailed WeWork as reporting a “$197 million charge related to asset impairments as it wrote down the costs of businesses it acquired” and costs regarding the full saga of its IPO of $83 million.

According to CNBC’s read of the figures, the company’s run-rate was up 108 percent from the year-ago period.

The $1.25 billion net loss figure could be expanded by so-called one-time costs. CNN reported that WeWork’s cash on hand was $2 billion “as of September 30.” (WeWork’s prior investors apart from the Vision Fund include Benchmark, T. Rowe Price, Wellington Management, SoftBank proper, Hony Capital, Legend Holdings, among others.)

Even for WeWork, losing $1.25 billion in a quarter is shocking. The firm lost $1.9 billion in all of 2018, for example. To add to your understanding of the numbers, here’s what the company’s last few quarters look like regarding revenue and net losses (bear in mind that the company’s negative free cash flow is different from the shown net loss figure):

It’s now more surprising that WeWork got as far as it did on the path to going public than it is a shock that the company had to withdraw its prospectus. WeWork’s results are staggeringly negative, showing a business that is ravenous for cash and is more than willing to spend more than $2 in a quarter for every $1 in revenue that it brought in.

Perhaps at an early-stage startup just taking its product to market, similarly scaled losses could be tolerated; but for a company as large as WeWork the deficits are unsustainable and speak to operational weakness.

Let’s recall the company’s turnaround plan that it hopes will be able to shake-up its operating losses and allow it another shot at going public.

The Future

WeWork has a four-part plan to right its ship: shed acquisitions not related to its “core business,” cut employee headcount, add more desks, and work on its internal and external relationships. WeWork said in a presentation to investors last month that it would get rid of some of its 18 or so investments and acquisitions (Conductor, The Wing and Meetup were among the companies listed to be divested).

New executive chairman Marcelo Claure has told employees that layoffs would happen, though he did not specify how many people would be cut from WeWork’s workforce of about 15,000 people.

The company told investors recently that it added 115,000 desks during Q3, according to CNBC, and said in its presentation last month that it expects “record highs” for desk openings in Q4. As for relationships that WeWork needs to fix, we can only speculate which ones those will be, given the chaos of the past couple of months. We can’t imagine investors and employees, for example, are happy with the situation.

And if WeWork didn’t have enough trouble winning back investor, employee, and public confidence, its bonds’ value recently declined. Sometimes things really do have to get worse before they can get better.

Illustration: Dom Guzman