Ed. note: this article was originally published April 26, 2018. We have included a 2019 update at the bottom about WeWork’s disastrous attempt at an IPO and how its broken accounting sent the house of cards tumbling down. First, the original article:
WeWork, a commercial landlord pretending to be a tech-lifestyle company, raised over $700 million in a bond offering yesterday, and it seems they are taking a page from Groupon’s accounting playbook, offering a ludicrous profit metric for all of our enjoyment:
In the offering documents, WeWork went to unusual lengths to show ways in which the company would be profitable. While many companies typically offer “adjusted” earnings, WeWork offered three different layers of adjustments.
It called the fully adjusted number “community adjusted Ebitda,” by which it subtracted not only interest, taxes, depreciation and amortization, but also basic expenses like marketing, general and administrative, and development and design costs. Those earnings were $233 million, WeWork said.
“I’ve never seen the phrase ‘community adjusted Ebitda’ in my life,” said Adam Cohen, founder of Covenant Review, a bond research company.
There are lots of unflattering things that someone could say about your company’s ridiculous non-GAAP metric, I have a hard time thinking of something worse than “I’ve never seen that in my life.”
A Look at WeWork’s Books: Revenue Is Doubling but Losses Are Mounting [WSJ]
The Guardian on WeWork’s failed IPO published December 20, 2019:
Everything went wrong for WeWork soon after it publicly filed documents for an initial public offering of shares, on 14 August. Six weeks later, Neumann had voted to remove himself from the CEO job and given up his majority control of WeWork’s stock. The company’s proposed valuation had fallen by more than half, and the IPO had been called off entirely. The failed IPO and the company’s subsequent takeover by SoftBank, its largest investor, were both facilitated by the public exposure of long-known information: WeWork was losing a ton of money; its projections of the size of the market for shared office space (up to $3tn) were wildly optimistic (it counted anyone who worked at a desk in an American city where there was a WeWork as a potential “member”; in non-US cities with WeWorks, the estimate applied to anyone with an office job); and its corporate culture and strategy were completely in hock to Neumann and his family’s bizarre ideas and whims.
The company’s business model had been known to be expensive and have little path to profitability since at least 2015, when BuzzFeed first published documents WeWork had used to solicit investors.
Why WeWork went wrong [The Guardian]