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Contributed by Whitney Tilson, founder and CEO of Empire Financial Research, which aims to provide advice, commentary and in-depth research and analysis to help people around the world become better investors. Its first newsletter, the Empire Financial Report, launched in April 2019. In the year prior to launching Empire, he founded and ran Kase Learning, through which he taught a range of investing seminars around the world and hosted two conferences dedicated solely to short selling.  Mr. Tilson founded and, for nearly two decades, ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds.

WeWork’s parent company, The We Company filed its Form S-1 on 8/14th (you can read it here) in preparation for its highly anticipated IPO, which could take place as early as next month.

There are so many red flags surrounding this company (beginning with the dumbest name ever) that I scarcely know where to start. How about with the financials: In the first six months of this year, the company managed to lose a staggering $690 million on revenues of $1.54 billion in revenue. That’s a negative 45% net margin!

The Twitter-sphere is going nuts about what’s in the S-1. Bloomberg reporter Shira Ovide just tweeted:

I have only read the related party section in the WeWork IPO filing so far, and I am not kidding that it is THE MOST BANANAS THING I HAVE EVER READ.

(I did a search in the S-1 for “related party” and “related parties” and came up with 68 and 39 hits, respectively!)

Geoffrey Batt tweeted:

WeWork minimum future lease obligations over 15yrs = $47.2 billion. Seems like leasing space to WeWork is the better business, which might explain why the CEO owns the buildings receiving WeWork lease payments in a separate company.

But not to worry, Batt adds, tongue in cheek:

The We culture is so tight members would sell their first born before breaking a lease. What’s more, the filing says the [estimated] total addressable market is a solid $3 trillion, and WE only realized [approximately] 0.2% of it. I’m sure everything will be fine.

Another tweeter adds:

Just another wealth transfer business then. 2&20 Hedge Fund Managers are probably fuming that they did not do this – stuck in front of a Bloomberg Terminal in Manhattan every day while [WeWork co-founder and CEO Adam] Neumann gets rich private jetting around the world and snowboarding.

For a more in-depth look at WeWork, here’s a recent article in the Boston GlobeWeWork rose fast on short-term leases. But can it stick around long-term? 


These are boom times for WeWork.

The co-working giant has been scooping up Boston office space at a torrid clip, some 1.5 million square feet in 16 buildings, from downtown towers to Fort Point warehouses. That’s nearly a Hancock Tower of desks that it rents from landlords and then sublets on flexible terms to everyone from freelancers to Fortune 500 companies.

At this pace, WeWork should soon surpass Fidelity as the largest user of office space in Boston, a swift ascent for a firm that in 2016 had two outposts renting desks for a few hundred dollars.

But its meteoric rise in the notoriously cyclical commercial real estate industry also raises a troubling question, with broader implications beyond the fate of one company: What happens when a recession hits, or if WeWork falls?…

WeWork’s fortunes are being closely watched by real estate executives and Wall Street types alike as the company readies for a public stock offering, likely this fall, while gobbling up ever-larger chunks of buildings in cities worldwide.

There are reasons to fret. Just nine years old, WeWork has known only boom times. It’s never reckoned with a recession. The company’s bread-and-butter clients are startups and other companies too small or too fast-growing to commit to traditional long-term real estate, and they are susceptible to vanishing just as quickly as they come.

Oh, and there’s this: WeWork lost nearly $2 billion last year.

“I’m highly skeptical,” said Mark Hickey, director of market analytics at real estate data firm CoStar. “They really could get hit on all fronts. The whole well could dry up.”…

In a downturn, it wouldn’t take much for WeWork to get hit. Freelancers and solo entrepreneurs might decide to save on their $500 a month WeWork membership by working from a coffee shop instead. The venture capital firms that float midsize startups could get cold feet and pull their funding, forcing the companies to lay off employees or close outright. Corporate tenants to whom WeWork increasingly leases satellite office space may find they have room to spare again at headquarters.

And because WeWork’s business model isn’t based on the traditional 10-year office lease, with many tenants renting month-to-month, those bustling, hip work spaces could empty out fast.

That’s what happened to Regus, a co-working pioneer that prospered during the tech bubble of the late 1990s but filed for bankruptcy protection in 2003 after the bubble popped and many of its tenants folded.

The more I learn about this company, the more obsessed I get… It’s a wild combination of Uber, Tesla, the Fyre Festival, and Theranos! It’s not a fraud, but it’s a total scam.

You heard it here first: I don’t think this IPO happens, even with some of the biggest banks on earth pimping themselves for at least $100 million in fees. If the SEC doesn’t nuke this pig, the markets will, as investors finally appear to be rediscovering the concept of risk. As one of my friends wrote to me:

I think the market has gotten a lot more discerning in the last two weeks of money-losing 2022-2024 profit stories, plus WeWork is especially hairy on corporate governance and business model, even among this speculative cohort.

If we’re right, then things could get ugly fast, given the company’s horrific cash burn…

From the “you just can’t make this stuff up” department, in its S-1, the company disclosed:

In July 2019, WE Holdings LLC assigned residual rights related to “we” family trademarks to the Company, which we desired to obtain following our rebranding in early 2019. In consideration of this contribution and in lieu of paying cash, the Company issued to WE Holdings LLC partnership interests in the We Company Partnership with a fair market value of approximately $5.9 million, which was determined pursuant to a third-party appraisal.

Let me translate this legal gibberish for you:

  • Co-founder and CEO Adam Neumann decided to re-brand WeWork as “The We Company”…
  • Of course, to do so, the company had to gain legal rights to this new name…
  • But – surprise! – someone else already owned it…
  • To get the rights, The We Company paid $5.9 million to WE Holdings LLC…
  • Which is owned by… wait for it…
  • Neumann!

For more on the various absurdities surrounding Neumann, his wife, and his company, I recommend these articles:

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