WeWork IPO: The Easiest Short Of All Time?

Betting against stupid

The highly unprofitable VC backed tech companies of Silicon Valley have been parading through IPO’s over the last decade. Some have been successful, and some have been absolute flops. Some of the flops include: Uber, Lyft and Snapchat to name a couple.

The bubble has now gotten so ridiculously big that WeWork, a co-working space company is doing their Goldman Sachs backed IPO next month. The company lost $1.9 billion dollars last year.

The revolutionary co-working space (a building that has coffee, wifi and meeting rooms) WeWork is the latest trendy company to jump into the pool of redundant 2019 IPO’s.

For those who are unfamiliar with WeWork – the concept is as follows: if you have a new startup, instead of working from a coffee shop for the price of a coffee, why not rent a $900 per month desk that serves coffee and has wifi? It’s a pretty brilliant concept. WeWork brands their spaces as not only a place to work, but a ‘community’ of like minded people. Creating the ‘tribe’ that all millennials long for.

Here is a link to their S-1, 75% of it is a brochure with attractive millennials having fun.

Oh, and on top of that – it’s great for networking and meeting other entrepreneurs. You know those cringe network marketing events everyone loves? Imagine that was your office. Fun.

Oh, and they have a printer and copier on site as well if email isn’t up your alley.

High rent in a recession

With an impending recession, a brick and mortar building with insane rent seems like an odd business model, especially when entrepreneurs will be cutting costs left, right and center.

Even in the current bull market, the company reported a net loss of more than $900 million for the first six months of 2019 on revenues of $1.54 billion.

When not discounted for accounting purposes, the future lease payment obligations were $47.2 billion as of June 30. The average length of an initial term of a lease in the U.S. is 15 years, according to the prospectus.

WeWork has 528 locations, up from 485 at the end of the first quarter of 2019, and said it plans to open 169 new locations. The company said 50% of its memberships are based outside the U.S. and that enterprise customers, which made up 40% of its memberships, are its fastest growing membership type.

Remember Medmen?

Here’s where shit gets interesting. Remember the MedMen (MMEN.C) IPO where Adam Bierman, Andrew Modlin and that Captor Capital guy all got so many supervoting shares they controlled 97% of the company? Or remember Brandon Kennedy/Privateer Holdings having majority voting power over Tilray? Well, it looks like we have the same thing going on with WeWork.

WeWork is going public with three classes of stock. Class A shares will carry one vote each. Class B and Class C shares are “high-vote stock,” which carry 20 votes per share. As such, co-founder and CEO Adam Neumann will control the company. “As a founder-led company, we believe that this voting structure aligns our interests in creating shareholder value.”

It will trade under the ticker WE. J.P. Morgan Chase and Goldman Sachs are the main underwriters for the IPO.

The IPO date is set for September, 2019.

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Many investors are chomping at the bit to short the hell out of this deal, but, because of the cash put up for this one it may take a while. It’s looking like a long short, if you will.

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