They say a rising tide lifts all boats. Maybe the opposite is true, too, in a way – that a rocky sea swamps all ships.
In the wake of the Uber IPO, which can only be termed disappointing, red flags seem to be going up for tech firms or gig economy companies that seek to list on public exchanges.
One example, reports The Wall Street Journal, comes as WeWork Cos. moves ever closer to its own IPO. CEO Adam Neumann has told the financial publication that his company’s business model is “quite different” than ride-hailing companies such as Uber and Lyft.
The fact remains, of course, that those two latter firms have hundreds of millions of dollars between them, collectively and cumulatively, in operating losses. WeWork, too, has losses in its operating columns, with $264 million lost this past quarter, as sales were up more than 100 percent year on year to $728 million, and $1.9 billion lost all of last year. Yet the CEO (and CFO Artie Minson) told the Journal that the company has spent money to gain stakes in other firms that actually turn profits.
And in one further example of an evolving business model, WeWork has launched the ARK fund, a “global real estate acquisition and management platform” which, with $2.9 billion in equity capital, will acquire stakes in buildings and rent out those spaces.
As reported, WeWork has been valued at $47 billion. The model differs from other companies, said the two aforementioned executives, because once the office space that is central to its business model is rented out to other companies, profits accrue amid a shift in real estate to outsourced services and shorter-term leases. The company has also argued that it has some experience dealing with (and performing in) markets that are in recessions (its occupancy rate is around 80 percent, as reported in financial presentations).
Lyft has been losing money with a relatively narrow focus on its transportation business. Uber has been losing money even as it branches out into new revenue streams such as logistics and food delivery. And though WeWork has little to do with wheels, at least some observers have noted that the brush being used to paint all of these firms is broad indeed.
As Rett Wallace, co-founder of Triton Research, wrote in a note earlier this week, the spillover may hit WeWork. “Unless Uber and Lyft suddenly find themselves in favor and return to values at or north of their private-market benchmarks, it’s hard to see WeWork coming into the public market without valuation haircuts that look more like amputations,” he said.
The investors have taken the air out of ride-hailing firms’ tires – at least in terms of their foundations. It remains to be seen whether WeWork, focused on buildings and the people who work in them, will find a sturdy foundation in place for its own debut.