Morning Markets: WeWork moves to blunt two key points of criticism regarding ahead of its IPO, but the changes feel late, superficial, and don’t clarify the company’s confusing financial makeup.
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The We Company, better known as WeWork, made two intelligent decisions this week:
- It announced in a fresh S-1/A filing that it is “unwinding” a deal that awarded its CEO Adam Neumann $5.9 million for use of “‘we'” trademarks
- It intends to appoint Harvard Business School professor and WeWork consultant Frances Frei to its board after its IPO.
Two actions, one purpose. WeWork has come under withering fire in media, startup, and financial circles for paying its CEO for use of a trademark; the deal looked like self-dealing from a CEO with voting control of his company. And the company has endured general censure for filing to go public with an all-male board. (Axios reported on the updates earlier in the day, alerting Crunchbase News to the filing.)
That the company agreed to pay Neumann $5.9 million in “consideration” for assigning “rights” to the “we” trademarks that he controlled through his own side-corporation was a massive optical error. That it had the poor judgment to get all the way to an IPO without any women on its board was inexcusable.
Fixing both is good, even if the money (“the issuance […] of the partnership interests was unwound and the partnership interests were returned to the We Company Partnership”) should never have been paid, and appointing a woman to the board after the IPO smacks of window-dressing and general ignorance.
If the markets will decide that the company’s sense of judgement is improving isn’t yet clear, even if the moves are steps in the right direction.
Looming Obfuscation
It’s old-hat now to point out that WeWork’s business model is hard to parse from its S-1 filing. That its real cost of revenue is hard to nail down, that its adjusted profit metrics are confusing, and that it is hard to tease out growth costs from operating costs.
This makes the potential profit of its long-term model hard to grok. And if you can’t estimate a firm’s future profits, how can you value it?
WeWork’s financials will be the deciding factors regarding the firm’s IPO potential success or failure. But you can’t help but wonder if the company would be able to extract more goodwill—faith, even—from investors if it hadn’t committed its unforced errors.
Recall that Neumann also sold blocks of shares ahead of the IPO and borrowed against others. This allowed him to buy real estate that he later leased to the company, leading to some cries of double-dipping. (See also: The trademark issue.)
WeWork could be spending its time arguing about the long-term value it can extract from its mature buildings. Instead, it’s promising to appoint a woman to its board at a later date and retracting a $5.9 million payment to its CEO who, through a separate company, charged his own company for use of a trademark that he owned. This is not where you want to be if you are working to go public whilst defending a high valuation.
There are more important things going on today (Hong Kong’s leader just withdrew the extradition bill, Boris Johnson is getting the whacking that he’s long deserved after losing his majority, and Hurricane Dorian is nearing the Carolinas as we type), but in our little pond of private companies and private capital, this is the feature event.
More when WeWork sets a price range.
Illustration: Dom Guzman
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