The company formerly known as WeWork now called We Company provides a very useful service in renting out office space which is shared among many individuals and companies. It has lots of promise and hype and the last time it raised money, the valuation for the company was $47 billion, now it is considered issuing shares or IPO but the valuation is for $20 billion.
According to an article by Joshua Franklin of Reuters, the drop in value is due to the company’s lack of a road map to where it becomes profitable and concern over governance issues. The company makes its money renting out office space under short term contracts, but pays the leases under long term leases, there should be a premium in between. However the company lost more than $900 million in the first half of 2019, up 25% for the year earlier although revenue doubled to $1.54 billion.
The skepticism is if the economy goes into a slowdown or nears recession, how will the company hold up? Prior to the Uber and Lyft IPO, investors wanted to see growth, but the shares for Uber and Lyft did not increase as much as desired. Barry Oxford a real estate analyst at D.A. Davidson & Co said investors now want an appropriate discount to price in risk and have a greater comfort the stock will not fall below the IPO price.
The company We Company is 29% owned by Japan’s Softbank Group Corp and 27% owned by co-founder Adam Neumann. The company paid $17 million in leases in office buildings Mr. Neumann owns.
Linking to dividend paying stocks, when you buy dividend paying stocks, the concern is profitability, will the company make profits to pay dividends this year and next year? when you buy growth stock is will the company grow faster and eventually make a profit? there is excitement in both approaches, however when the dividend comes in, it will make you feel good.
There are more questions than answers, till the next time – to raising questions.