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I am We(Work).
WeWork Cos., The We Company, WE, is not you, me, or even us. It is one person, and that is Adam Neumann.
That WeWork is all about Adam, its co-founder, CEO, part-time landlord, part-time borrower, visionary, spiritual guide, spirit animal—was the bottom line of the IPO filing the company unveiled last week. But we already knew that. “WeWork is me, I am WeWork,” he told Business Insider in May.
The filing revealed the gritty dealings of that relationship. Adam—he is often just Adam in the filing—earns no salary from WeWork but he controls the company through his near-total ownership of super-voting shares with 20 votes apiece. His wife Rebekah, also a co-founder, is WeWork’s chief brand officer; two other immediate family members have been employed or paid for their services by WeWork. Adam has an ownership stake in four buildings leased to WeWork, which the company made payments worth $20.9 million on from 2016 to June 2019. Adam has received personal loans from WeWork, including a $7 million loan issued at a generous 0.64% interest rate in June 2016 and a $362 million loan issued in April 2019. He has a personal line of credit provided by banks involved in WeWork’s IPO and secured by shares of WeWork Class B common stock. When WeWork rebranded as We Co. earlier this year, it had to buy the trademark to “we” for $5.9 million from We Holdings LLC, an entity Adam controls.
Venture capitalists often talk about investing in people not ideas. Take that to its logical extreme and you get WeWork: a startup whose founder believes he is the company. WeWork made its name building spaces for startups at a time when Uber and Airbnb had dozens of imitators and startups were the hottest investment around. WeWork talks about community but what it really sells is cookie-cutter culture. It leases buildings from landlords, outfits them with all the trappings of Silicon Valley offices (industrial-chic decor, beer-on-tap) and rents the space out to tenants at a premium on flexible terms. WeWork relies on billions of dollars in investor financing (hi, Softbank) to expand and gain market share, but also to fund the startups that pay it rent. The company depends on the startup boom that created it.
That WeWork may not survive a recession is no longer a niche theory. Any sort of economic downturn could freeze the venture funding pipeline, squeezing WeWork and the companies that rent from it. Venture funding is also only one of the macro trends currently working in WeWork’s favor. The company has enjoyed a strong commercial real estate market and a robust global economy. Younger generations are much more open to renting and shared assets, and they are living and working in cities, which represent the majority of WeWork’s revenue.
Despite the fact that the odds have favored WeWork since the company was founded in 2010, its net losses resemble Pride Rock. WeWork argues in its S-1 that it will make money once its buildings reach “maturity,” which it defines as open for more than 24 months, but with only 30% of locations classified as “mature” as of June 1, time may not be on its side. Economists don’t know when the next recession is coming, but the indicators they watch are flashing warnings. If the economy goes south, as is bound to happen eventually, venture capitalists may pull their funding, and startups may decide that a chic office with regular happy hours isn’t worth the premium rent.
Neumann has said the company is ready for, and could even benefit from, a recession. “We do not lose money, we invest money in the future,” he told Business Insider in that same May interview. He believes WeWork offices are cheaper than the competition, and that the company has secured a lucrative pipeline of enterprise clients. He says WeWork is big, and more importantly it has a lot of cash. “This is part of the reason why it's important to be very well funded,” he told Business Insider. “You have a lot of optionality.”
Whatever you take Neumann’s stance for—savvy, salesmanship, bravado, ignorance, blind faith—it makes sense in his world: the world where WeWork is me, I am WeWork. Adam and WeWork are the ultimate synergy, mysteriously increasing each other’s value. Adam sets the vision, collects fat checks from investors, and has a direct line to Softbank CEO Masayoshi Son, whom he calls “Yoda.” Adam has gone to great lengths to arrange things—power, money, connections—in favor of Adam. If you really, truly believe not just that he is WeWork but also that WeWork is him, then you believe he has gone to equal lengths to arrange things in favor of the company as well.
Pricing an IPO is hard. Set the price too low, and you miss out on money the company could have raised. Set the price too high and you risk shares sinking right off the bat, which doesn’t inspire confidence in a newly public company. There are probably different schools of thought on what a perfectly priced IPO looks like, but there is definitely one thing you don’t want the IPO to be, and that’s a down round.
By down round I mean a situation where the IPO price winds up below the price the company sold shares at in private funding rounds. In general you hope the share price rises in each consecutive funding round as the company gets bigger, more mature, and more valuable. The IPO is sort of the natural conclusion of those rounds, and also if the IPO price is lower than private fundings, it means some of your private investors are likely out of luck unless the stock price climbs above what they paid.
Lyft hasn’t done great since it went public in March but it did clear the not-a-down-round bar. The $72 IPO price represented a 52% premium on the price investors in Lyft’s Series I funding round, its final one prior to the IPO, paid in June 2018. Lyft’s stock is down nearly 30% from that IPO price, but has hovered just above the Series I price. That meant private investors were still on track to book gains on their holdings when the company’s IPO lock-up expired yesterday, letting company insiders sell their shares to the public for the first time.
The lock-up expiry made roughly 258 million shares of Class A common stock available for trading, out of a total of around 280 million, or 341 million on a fully diluted basis that includes shares that have yet to be converted. Lyft stock slipped 1.5% on heavy trading volume while the Nasdaq rose a point.
The company that should be far more worried about its lock-up ending is Uber. Uber’s IPO was a down round. It priced shares at $45, the low end of its range and less than what investors in its Series G, G-1, and G-2 funding rounds paid. The stock has since traded down about 25%, dragging Uber’s current share price below what investors in its Series F round paid, and dangerously close to the price paid by Series E investors as well. Uber’s market cap is sitting at $61 billion, well below its last private valuation of $70 billion. It’s a rough situation, but it looks nice in a chart.
Cash on hand.
Here is an odd article from the Wall Street Journal that highlights Airbnb’s “strong cash position” and contrasts it with money-losing firms WeWork and Uber, while failing to clarify whether Airbnb is currently profitable itself:
Airbnb’s finances tell a different story than other initial public offerings from large technology companies. Real-estate business WeWork Cos., which is expected to go public as soon as September, unveiled its financial prospectus this week, showcasing operating losses of $1.37 billion in the first six months of this year. Ride-sharing business Uber Technologies Inc., which went public in May, faced investor concerns over its losses. The company lost over $5 billion in its most recent quarter, in part because of IPO-related costs.
Technology businesses often drown in marketing costs, but Airbnb has been able to grow while keeping these expenditures in line.
Airbnb, as the Journal notes, has previously said it was profitable on an Ebitda (earnings before interest, taxes, depreciation and amortization) basis in 2017 and 2018, a slightly different metric from overall profitability. Whether that trend has continued into 2019 is unclear from the Journal’s story, though the absence of a clear statement that Airbnb remains profitable on an Ebitda basis makes you wonder if it hasn’t. At any rate, the company had a “strong first quarter performance” that included 91 million nights booked or $9.4 billion in total bookings, up 31% from the same time a year ago. Airbnb had $3.5 billion in cash on its balance sheet as of March 31, or about three unicorns. It’s aiming for an IPO in the first half of 2020.
They’ve started driving themselves:
Segway-Ninebot Group, a Beijing-based electric scooter maker, on Friday unveiled a scooter that can return itself to charging stations without a driver, a potential boon for the burgeoning scooter-sharing industry.
Ninebot said Uber (UBER.N) and Lyft (LYFT.O), the ride-hailing giants that are expanding into scooter-sharing, would be among the customers for the new semi-autonomous vehicles that are expected to hit roads early next year.
A scooter that can return itself to a docking station is an interesting idea. One of the main problems with the dockless electric scooter model is that people are terrible. People are constantly leaving scooters in places they shouldn’t be left, like in the middle of public roads and sidewalks, in lakes, and up trees. Scooter companies have tried to combat this behavior with educational materials and digital fences that alert riders when they have parked a vehicle inappropriately. Some companies require users to take a picture of their parking job to return a scooter at the end of the ride.
But what if you didn’t need to rely on people at all, because you the scooter would just take itself back to an appropriate parking space? Better yet, what if you could install a network of charging stations, similar to what exists for certain electrified bike-share programs, and rely on the scooters to plug themselves in after each trip, thus reducing the need for workers to roam around swapping out batteries or taking scooters home to recharge themselves? That could cut operating costs, reduce scooter-related emissions, and eliminate a lot of headaches for the companies. The autonomous models are pricey, at £1,169 (about $1,400) each, but maybe they’re worth it.
This time last year.
Dropbox evacuates office after electric scooter catches fire. Lime courts investment from Softbank. New York considers cap on food delivery service commissions. Lyft plays hardball in New York City. Postmates gets permit to test autonomous delivery robots in San Francisco. Options traders sour on Grubhub. Caviar employees say DoorDash, Square mishandled their offers in acquisition. Domino’s rolls out e-bike customized for pizza delivery. Chili’s bets on food delivery. DoorDash launches in Montreal. Uber perfect for older people, if they’ll try it. Oyo investing €300 million in European vacation rentals. Birth control delivery startup Nurx raises $32 million. Skip unveils new scooter designed for heavy use. Waymo tests heavy rain capabilities in Florida. Postmates workers say they weren’t told their names would appear in an anti-labor ad. Bath being ruined by Airbnb party homes. Uber boat. Central Park West residents want their parking spaces.
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