Can WeWork's IPO Raise Enough Cash?
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What short market headlines set the stage for this WeWork discussion?
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 WeWork is going to raise the cash necessary to grow at its current pace. We'll check in with journal reporter Elia Brown in a moment to get some details. First, these money and market stories you should know.
How did compensation and wage trends impact the economic context?
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 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.
What did the American Customer Satisfaction Index reveal about airlines?
About 13,000 travelers are surveyed for the report on things like airlines' on-time arrivals and departures, baggage handling, and cleanliness. Alaska came in first, and it bumped Southwest Airlines down to number two. The report blames Southwest's drop to 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.
Why did WeWork file confidentially for an IPO and what attention did that draw?
So, Elliot, WeWork is an expensive business. It burned through more than $2.3 billion in 2018 alone, and that's a lot for a startup, and it's been searching out for other resources for more cash.
Yeah, it's a pretty fascinating company. I mean, they've been really fast growing over the past nine years they've been around, and especially in the past few years, it's been doubling their revenue every 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.
Yeah.
How much cash does WeWork have, how fast is it burning it, and how long will it last?
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 back into the company. And among their biggest expenses are customer acquisition.
Right.
Yeah, what they do is 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 white subway tile and beer on tap. And that's not cheap. And so what they say is that it's an 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.
What has WeWork said about the cash it has on hand?
So they've said previously they had, you know, as of the first quarter, around $6 billion, which sounds like a lot. 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.
Can an IPO alone cover WeWork’s future funding needs and what alternatives exist?
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.
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Chapters
6 chapters
1
What short market headlines set the stage for this WeWork discussion?
0:05–0:23
2
How did compensation and wage trends impact the economic context?
0:23–0:59
3
What did the American Customer Satisfaction Index reveal about airlines?
0:59–2:10
4
Why did WeWork file confidentially for an IPO and what attention did that draw?
2:10–2:57
5
How much cash does WeWork have, how fast is it burning it, and how long will it last?
2:57–4:10
6
Can an IPO alone cover WeWork’s future funding needs and what alternatives exist?
4:10–6:01
Speakers
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