Doubts about WeWork's sky-high valuation seem to be growing.
Now rebranded to The We Company, the co-working firm was last valued at $47 billion earlier this year, but its comparatively low revenue -- its recent S-1 filing suggests its on track to generate roughly $3 billion this year, along with a roughly equivalent operating loss -- have left many observers scratching their heads.
In a recent blog post, NYU Professor Scott Galloway dubbed WeWork's S-1 "WeWTF" and argued that its valuation, which makes it the highest-valued U.S. startup right now, is symptomatic of a frothy market willing to overlook multiple red flags, such as WeWork's highly complex org chart, CEO Adam Neumann's recent cashing out of $700 million in shares and 93 mentions of "technology" when they are something closer to a commercial real estate firm.
WeWork's valuation even popped up on the margins of the 2020 Presidential race, with candidate Andrew Yang recently tweeting that the valuation is "utterly ridiculous...If they are a tech company so is UPS. UPS trades for 1.4x revenue not 26x."
There are some positive characteristics of WeWork's business, said DJ Kang, CEO of the finance site ValueChampion. Those include a large existing footprint and "brand habit" that may help it retain customers.
"While the business model itself doesn't exhibit a hard lock-in effect that prevents its customers from leaving, its net customer retention rate of 119% indicates a decently high level of stickiness in its customer base," he said.
Drawing a comparison to Amazon (AMZN - Get Report) , which took 15 years to turn a profit in large part because of the modest margins in its e-commerce business, Kang pointed out that WeWork may have to achieve immense scale before it ever becomes profitable.
"The problem with WeWork is that the company is already quite large, but still massively unprofitable," added Kang. "In fact, the company may have to grow its business by 10-20x before it starts to generate some profit, as Amazon has done in the past."
As of its August S-1 filing, WeWork operated 528 co-working spaces in 111 cities, with a total of 527,000 memberships. The company reports that every year since 2014, its membership base has grown by over 100%.
It isn't just certain high-profile critics that seem to be shunning stakes in WeWork, however.
According to EquityZen, a marketplace for trading pre-IPO shares, demand for WeWork shares hasn't matched that of other unicorns with similar name recognition.
"I can say that investor demand for WeWork has been tepid at its current valuation compared to other companies with similar brand awareness, like Slack and Spotify, where demand was very strong on our marketplace leading up to their direct listings," said an EquityZen spokesperson. "I believe it's indicative of the broader skepticism WeWork's valuation elicits and will elicit from public investors as they prepare to go public."
In its upcoming IPO, The We Company plans to sell shares under the ticker symbol WE. Its share price has yet to be announced.
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