WeWork's IPO filing is out

CLXXV

Aug 14, 2019

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WeWork just dropped its S-1 so I am off to read it. Tragically, it doesn’t include a single mention of superpowers. Yes this is the first thing I searched. More later!

Mind the GAAP.

WeWork Cos., racing toward an exit, just filed its S-1. The office-space rental company, which also dabbles in adult dorms, early childhood education, elevating the world's consciousness, and unleashing superpowers, is reportedly looking to raise $3.5 billion in the second-biggest IPO of the year (after Uber), with its sights set on a September debut.

“The New York-based company will test public investors’ appetite for cash-burning startups,” says Bloomberg. WeWork lost $1.8 billion last year on $1.9 billion in sales and another $900 million in the first half of this year, though Uber lost $5 billion in just the last quarter, so, you know, it’s all relative.

More than cash-burn, WeWork has tested investor tolerance for made-up accounting metrics. You might recall community adjusted EBITDA, the term WeWork devised to measure net income before not only interest, taxes, depreciation and amortization, but also “building- and community-level operating expenses,” a category that includes rent and tenancy expenses, utilities, internet, the salaries of building staff, and the cost of building amenities, and which WeWork has described as its “largest category of expenses.”

Other “key financial measures” WeWork highlighted in an April 2018 bond offering document included:

ARPPM (annual average membership and service revenue per physical member). “[R]epresents our membership and service revenue (other than membership and service revenue generated from the sale of WeLive Memberships and related services) divided by the average of the number of WeWork Memberships as of the first day of each month in the period.” (Note: this is not just creative accounting, but also creative acronym construction.)
Adjusted EBITDA before Growth Investments. “[A]n additional supplemental measure of our operating performance, which represents our Adjusted EBITDA further adjusted to remove other revenue and expenses (other than revenue that relates to management fee income from advisory services provided to Branded Locations) and what we define as ‘Growth Investments,’ which are sales and marketing expenses, growth and new market development expenses and pre-opening community expenses.”
Location Contribution. “[R]epresents our membership and service revenue less total lease costs included in community operating expenses, both calculated in accordance with GAAP, excluding the impact of Adjustments for Impact of Straight-lining of Rent included in community operating expenses.”

But none of these terms appears in WeWork’s S-1. The SEC apparently wasn’t feeling the community-adjusted spirit.

Terms like these are known in the business world as non-GAAP accounting: GAAP, or generally accepted accounting principles, being the legal standard for financial reporting. Companies invent these measures to take results they don’t love but are required to report and turn them into results that look more attractive. A review by financial data platform FactSet found that since 2016, three-quarters of companies in the Dow Jones Industrial Average have reported non-GAAP earnings that, on average, beat their GAAP earnings. If your made-up metrics aren’t outperforming the standard, what’s the point, really.

Companies argue non-GAAP numbers can give a better picture of the business. WeWork, for instance, defended “adjusted EBITDA before growth investments” in the 2018 bond documents as a useful measure of how the company performs when you ignore the cash it burns on expansion. Sure, we lose money now, WeWork was saying, but consider how much money we'd make if we flip this lever.

Whether you agree is sort of a matter of personal opinion. If you think GAAP is the rule and companies should follow the rules, you probably aren’t a big fan of non-GAAP accounting. If you think the market can discern useful information from corporate spin, you might not mind companies getting a bit creative. And if you have a money-losing startup that needs fresh ideas for how to flatter its financials, Quartz has a list for you.

Also in We:

WeWork revamp creates tax benefit for company insiders (Financial Times)
WeWork is sole tenant in at least five New York City buildings (The Real Deal)
How JPMorgan wooed WeWork (Bloomberg)

The gig is up.

Food delivery startup Deliveroo said Monday that it will exit Germany by the end of the week, putting 1,100 self-employed delivery workers or “riders” out of work on four days’ notice. The headline is that Deliveroo pulled out of Germany “amid fierce competition” and sure, Germany market leader Takeaway.com is in talks to merge with with London-based Just Eat, but I am more interested in the labor side of the story.

The selling point of the gig economy is flexibility. Workers can be their own boss, set their own schedules, hop between platforms as they please. The tradeoff is that gig workers as independent contractors lack the job stability and protections of regular employees. The work is by nature transient, and it can be gone in an instant.

This isn’t to say that employee jobs are forever. In the US many employees are “at will,” meaning they can choose to leave or be let go at the drop of a hat. Uber just last month cut a third of its global marketing team, some 400 people. When layoffs happen at a company like Uber, though, there’s an element of shock; we feel implicitly as though the cuts are a betrayal. When a gig company puts a huge number of people out of work, we don’t even have the language to talk about it. Jobs are lost, but only in the abstract, because those people were never “employed” to begin with.

Deliveroo is offering a small amount of compensation to workers, with a catch. The company has offered one payment of 10 days’ worth of fees, and a second of two weeks’ fees, both based on each worker’s average earnings over a 12-week period. To get the second payment, workers must sign and return a letter to Deliveroo agreeing that “all claims arising from and in connection with the contractual relationship are settled,” according to a copy shared by Niels van Doorn on Twitter.

Van Doorn, a professor of new media and digital culture at the University of Amsterdam, spent eight months studying gig workers in Berlin. He told me Deliveroo couriers were “distraught or dumbfounded” to learn their jobs would disappear by the end of the week.

Van Doorn is concerned with the instability of gig work, and how gig companies “weaponize” their workers. Uber, faced with attempts to regulate the ride-hail industry, often used to threaten local officials that new rules could force it to suspend operations and put all its drivers in a market out of work. Deliveroo’s abrupt exit in Germany, van Doorn said, reveals the hypocrisy of that approach. When workers are no longer useful to gig companies, he says, “they’re completely expendable.”

Net income.

Lyft and Uber both reported second-quarter earnings last week and boy were they different.

Lyft beat estimates with $867 million in revenue and said it believes its toughest days are behind it. The company adjusted its full-year forecast and said it expects to lose less money in 2019 on an adjusted basis than it did in 2018, after previously forecasting that loss to grow this year. Chief financial officer Brian Roberts said Lyft believes it has “a clear path to profitability.” (Spoiler: the path is raising prices.)

Uber, reporting a day later, posted a $5.2 billion loss—yes, that is billion with a “b”—and missed revenue expectations. Analysts knew Uber would report a big loss for the quarter because of a multibillion-dollar stock bill triggered by its May IPO, but $5.2 billion was worse than they planned for. Uber CEO Dara Khosrowshahi shrugged off concerns that Uber may never be profitable as “a meme.”

Shares in both companies are currently sitting 19% off their IPO prices: Uber closed yesterday at $36.45 (IPO price: $45) and Lyft at $58.08 (IPO price: $72). So, you know, at least the market is consistent. Lyft also said in its quarterly report that it would end its customary post-IPO lock-up period on Aug. 19, nearly a month earlier than expected, at which time an estimated 257.6 million shares will be eligible for sale.

Uber, meanwhile, is reportedly in a hiring freeze after gutting its marketing team last month. Uber chief financial officer Nelson Chai is fielding ideas from staff to #FindTheMoney, including one to replace helium “Uberversary” balloons with stickers in an effort to save $200,000 a year. “It’s not only a great way to find dollars we can invest back into the business, it’s also more environmentally friendly,” Chai told staff. Longtime readers of this newsletter know I love a good metaphor but, I don’t know, getting rid of anniversary balloons to deflate costs is a bit on the nose.

Scooters!

The enemy of the scooter is the cobblestone:

They have invaded cities across the world to the delight of some and irritation of many.
But the dockless electric scooter, billed as being cheaper than a cab, less effort than a bike and more convenient than the bus, has finally met its match: the cobblestones of Bruges, the Unesco-protected Flemish city.

“It is not right for our city,” says Bruges mayor Dirk De fauw. “We have the cobblestones and those kind of vehicles are not prepared for that kind of street. One of the companies said that they have a special kind of scooter with larger wheels and that could work on the cobblestones. We have said that they could lend us a scooter for us to test for a week but, really, we don’t think it is for us.”

This time last year.

The best cap on Uber would be to fix the frigging subway

Other stuff.

Postmates plans to drop IPO filing in September. Uber investor says Dara Khosrowshahi lacks ruthlessness of Travis Kalanick. Softbank eyes investments in Mexican startups. Waitr names Adam Price CEO. Bird monthly scooter rental far worse than a bike. DoorDash seeking $400 million credit facility ahead of an IPO. New York City extends cap on ride-hail vehicles. Uber sues Chicago over bike-share deal with Lyft. Colombia fines Uber $690,000 for disrespectful, obstructive attitude. Lyft facing flurry of sexual assault lawsuits. WeWork in talks to acquire SpaceIQ. Dumpling raises $3 million for grocery delivery. Flix Mobility extends series F at $2 billion valuation. Potbelly partners with DoorDash. Bird Two. Airbnb neighbor from hell. Seattle Airbnb host offers mock Amazon job interviews for $4,600.

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Send tips, comments, and creative accounting schemes to @alisongriswold on Twitter, or oversharingstuff@gmail.com.

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