Morning Markets: WeWork is back at the capital well this morning. Let’s take a quick look.
WeWork, a vehicle that converts hard currency into negative net income via a meatless real estate arbitrage play, has raised more capital. This time the famous unicorn has picked up $3 billion, again from SoftBank, though from the company itself and not its Saudi Arabia-backed Vision Fund, which is also an investor in the firm.
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Details on the round (Axios, Financial Times) are somewhat simple. The new capital comes as WeWork’s “same terms as a $1 billion convertible preferred financing” from Q2, according to Dan Primack. Those terms? The capital is a “warrant that enables SoftBank to acquire stock next year at a price that will value the company at least $42bn,” per Judith Evans and Eric Platt.
What it means is that WeWork now has even more cash to spend on its growth strategy. Which, per today’s media coverage, is set to accelerate. WeWork isn’t using its cash to get its financial health in order, in other words, it’s using the money to grow its real estate footprint even more quickly.
Recent accounting isn’t overly positive. The company’s financial performance includes quickly growing revenue ($482 million in Q3’18, up from $241 million in the year-ago period), and huge losses. Primack writes that WeWork lost $497 million in the third quarter, though some of that deficit was driven by associated entities.
Regardless, WeWork, after around $12 billion in capital-raised ($9.1 billion before today, and the new $3 billion, unless I am missing something), is still losing money at a pace greater than 100 percent of its revenue. More simply, its profit margin is greater than negative 100 percent, based on reported numbers. After all that.
Illustration: Li-Anne Dias