Here at Crunchbase News we’ve made the occasional wry quip that ride-hailing companies are akin to fracking shops: both are insatiably cash-hungry with profits always just around the corner. SaaS companies once felt similarly, to be fair, but recent IPOs like Zoom’s own have undercut the narrative of unprofitable modern software shops.
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Unchanged, however, and still thirsty for new dollars is WeWork, the famous, private coworking giant. WeWork, now styled as the We Company, is a global business with swaths of office space under its control and an expansive vision for the future. The firm has posted tremendous growth in recent years along with steep losses.
And while WeWork’s view of its own model is that money invested today will yield lots of future margin, the company remains steeply unprofitable as it gears up for an IPO. If a public company candidate is unprofitable, cash hungry, and likely to continue along the same path for some time, it can worry potential investors. Why? Because the firm going public might later issue more shares to finance its growth, and issuing new shares dilutes the holdings of a firm’s existing shareholders.
WeWork is, therefore, looking to the debt markets. If it can secure lots of debt financing before an IPO, WeWork could effectively tell investors that it won’t need to sell more shares in the future to help finance its business. The debt will cover the rest.
But there’s admission to debt, so let’s dig a bit.
According to the Wall Street Journal, WeWork’s debt plans are anything but small. Indeed, they start large and could get even bigger:
The money-losing office-space manager is seeking to raise as much as $3 billion to $4 billion in coming months through a debt facility that could grow as big as $10 billion over the next several years[.]
That’s an ocean of capital for most companies; however, for WeWork, $3 billion to $4 billion is a fraction of the nearly $13 billion it has cycled through its cap table over time.
What I find eye-catching about the scale of debt that may be raised, and especially the upper-end of the what the debt transaction could reach, is the implied message: WeWork isn’t going to get close to making money for a long, long time. Keep in mind that WeWork already has over $700 million in junk-rated debt in the market from a 2018 offering, and has raised billions more since the start of 2018.
So, the firm is already in debt, and likely sitting on a good-sized cash position. Throw in $3 billion to $4 billion and an IPO haul, and you’d think that WeWork would have the capital it needs to reach self-sufficiency. Possibly another $6 to $7 billion in debt financing (you don’t raise debt at the prices that WeWork pays on a whim) is a signal of sorts.
The WeWork wager isn’t changing. The firm is still a quickly growing, unique global company that sits between the real estate and technology worlds. And it still loses money while it grows. What this possible debt raise and hoped-for IPO do change, however, is the scale of the bet. It’s getting bigger.
Expect this eventual IPO to be a sensation. Unlike the companies covered this morning, WeWork’s IPO will land like a veritable explosion in the tech and finance spaces, let alone in the world of real estate. I don’t even know where the thing will price. More soon.
Illustration: Li-Anne Dias.
Disclosure: Zoom and Crunchbase, our parent company, share an investor.