What Is WeWork?

As one of the most popular shared co-working spaces and hottest startups, WeWork has made a name for itself by giving small businesses and ambitious entrepreneurs a way to pursue the new American Dream. With coworking spaces all around the world, WeWork is also leaving its mark in the heart of New York City, where it purchased the iconic Lord & Taylor building, a Fifth Avenue Manhattan landmark, to house its new headquarters. So how does the company function--and more importantly, how does it makes its money?

History

Founded in 2010, WeWork Companies, Inc. provides a shared workspace to startups at lower costs than they would spend on space of their own. With shared offices gaining popularity, WeWork was valued as high as $47 billion at its highest point. However, when the company filed to go public in the summer of 2019, its S-1 filing revealed mounting losses, long-term lease obligations in the tens of billions of dollars, and significant risks to its ability to ever turn a profit.

Key Takeaways

  • WeWork is a company offering shared co-working spaces for entrepreneurs, remote workers, and freelancers by charging rent.
  • WeWork members benefit from networking opportunities, a host of perks and amenities, and not having to take care of office administrative tasks such as paying utility bills or replenishing the printer ink.
  • Once valued at $47 billion, WeWork has suffered increased scrutiny of its mounting losses and quickly burned through cash and indefinitely postponing its initial public offering announced in August 2019.

How WeWork Makes Money

WeWork is simply an office-leasing company. It makes money by renting office space. WeWork purchases real estate space—sometimes just a floor or two in an office building—and transforms it into smaller offices and common areas. It rents desks to individuals or groups who want the benefits of a fully stocked office without the expense of a full office.

Members include independent freelancers and remote workers who need an occasional office away from home. They may want unlimited Wi-Fi to focus on a deadline. Other customers are small businesses with multiple employees who need a consistent place to work, have meetings, and build their budding empires, but without the high cost.

Those leases don't come cheap. The company reported long-term lease obligations of $17.9 billion in its IPO filing, a number that is likely to increase as the company continues to expand globally.

Shared Office Costs

The shared office culture created companies like Uber and Airbnb. This growing business culture is undoubtedly a large component of WeWork's success. But WeWork’s business model is what makes it thrive.

The most basic membership costs only $45 per month and includes access to WeWork offices in 833 open or coming-soon locations in 120 cities worldwide.  It also includes access to WeWork's social network, WeWork Commons, which enables entrepreneurs to interact and exchange ideas. However, the actual use of the facilities costs an additional $50 per day, so it is best suited to those who are primarily interested in networking and only have occasional need for office space.

The company offers several plans to workers and businesses with varying prices, depending on the location. For example, in Los Angeles, a worker can get a “Hot Desk” starting at $320 per month, which will give them guaranteed workspace in a common location. For a desk of your own in the same spot each day, the Dedicated Desk fee starts at $400. Meanwhile, standard private office space in Los Angeles starts at $630 per month. The spaces come with high-speed internet, printers, bike storage, coffee, and shared front desk service. Other amenities include office supplies, water, and daily cleaning services.

$45/month

The cost of a basic WeWork membership.

Plans to Go Public in 2019

The company filed for an initial public offering on August 14th, 2019, revealing mounting losses as it attempts to scale its business and global locations. According to the prospectus, WeWork, which has rebranded itself as the We Company, attempted to raise $3 to $4 billion through the IPO to find future growth. For the six months ended June 30, 2019, the company reported revenue of $1.54 billion, but a net income loss of more than $900 million. WeWork's billion-dollar meltdown is now a cautionary business case study.

CEO Adam Neumann Steps Down

On September 24, 2019, Adam Neumann, the company's founder and chief executive officer, stepped down as CEO after weeks of scrutiny over his leadership style, the peculiar arrangement he had with the company wherein he would lease office space to WeWork from properties he had purchased using loans against his equity stake, and mounting losses. In a statement released to the press, Neumann said, "While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive." He was replaced by senior executives Arthur Minson and Sebastian Gunningham, who will act as co-CEOs.

IPO Withdrawn

WeWork indefinitely postponed its plans for an IPO on September 30th, 2019, as its $47 billion valuation looked increasingly doubtful. On October 22nd, 2019, it announced a funding deal with SoftBank. This deal will give WeWork $5 billion in new loans, accelerate a $1.5 billion investment SoftBank pledged to make next year, and launch a tender offer for $3 billion in shares from other shareholders. SoftBank would get an 80% stake in WeWork, but it would not hold a majority of voting rights. The deal values WeWork at approximately $8 billion.

Why WeWork Works

Of course, WeWork's model wouldn't function if it didn't offer value commensurate with its pricing. One of the chief benefits of using a WeWork space is that everything is taken care of, from utility bills to replenishing the ink in the printer. The WeWork staff keep everything running smoothly so members can focus on their work.

In addition to providing state-of-the-art office space to a generation of workers, WeWork has developed its properties into more than workspaces. Each office location is outfitted with stylishly designed common areas that include numerous leisure activities, such as foosball, screening rooms, arcade games, and bocce greens.

WeWork also provides regular opportunities for its members to meet, socialize, and network, both online and offline. In addition to its popular WeWork Commons online platform, each office site hosts a number of social events, launch parties, and workshops to help its members connect.

WeWork gives its members access to numerous discounts on professional services to help them grow their businesses and live healthier lives. WeWork partners with other companies to offer insider deals to its members on everything from health insurance and gym memberships to human resources and printing services.

Ongoing Expansion

Though it may pose a threat to more traditional office leasing companies, some in the industry see WeWork as more of an opportunity. In fact, the chairman of Boston Properties, Inc.—the largest publicly traded office landlord—personally invested in the rounds of fundraising after talking with Neumann and touring one New York location. WeWork has signed on to be the main tenant in a $300 million redevelopment co-owned by Boston Properties.

Even smaller landlords don't seem overly threatened by this up-and-comer. Some assume WeWork's business model won't be sustainable if the economy takes a downturn. Others see WeWork as a sort of incubator where small businesses can grow until they're ready to move into traditional office space.