The Only S1 You Should Read This Year

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WeWork filed to go public this week. Here’s a link to the S1.

If you quickly browse the key-points of the offering, it looks fairly standard with what we expect to see in 2019 from one of the most valuable venture-backed businesses, ever

WeWork has massive revenue growth, mounting losses, and a bold vision for world domination. Yada Yada Yada. We’ve heard this story.

However, if you take a few more minutes to absorb and view the entirety of WeWork’s S1, you’ll realize this is no run of the mill SEC filing. 

It is the Mona Lisa of SEC filings. It’s creative genius in a PDF and a work of art.

Today, I thought I’d share with you my take on the creative process and painstaking labor that went into sculpting all 300+ pages of this glorious masterpiece.

Let’s dive in.

Meticulous Upfront Research and Planning

WeWork is one of the most complex private companies I’ve ever seen. Bankers spent countless hours getting up to speed on the business.  They then had to figure out how to accurately depict the complexity of the organization and operations for legal disclosure purposes.  

For example, the way bankers were able to take WeWork’s vast organizational chart of related legal entities and turn it into a “simplified depiction” was no easy task. 

When you look at the “simplified depiction” on pg 16, imagine how much more intricate and complex the real thing is.  They sprinkle small glimpses of this complexity throughout the S1, but I still can’t make sense of it all.

Bankers also had to catalog $1.3B of acquisitions and investments (over 20 companies) made over the last two and a half years. Interestingly, no further financial disclosures were required because all $1.3B of these were “immaterial” to the financial position of WeWork.

Finally, the most tremendous undertaking was the task of sorting through the financial conflicts of interests between the Company and its shareholders. This is impressive because there are more conflicts of interest in this one IPO than in all the other S1s I’ve read this year, combined.   

I particularly enjoyed the way they explained how Adam Neumann, the founder, and CEO, has ~$1B in personal loans backed by his shares of WeWork.

Starting With A Blank Canvas

One of the biggest challenges to creating this S1 was all the noise in the market about real estate, property management, and coworking companies. 

For the audience to come away from this body of work with the right perspective, the bankers needed to start with a blank canvas from a competitive positioning standpoint.

To do this, they framed WeWork as the pioneer and first mover in a new industry called “space-as-a-service.” To the untrained eye, this may sound similar to companies like IWG, who provides flexible working spaces in 3,300 locations and generates $2.5B in revenue; however, we can rest assured that this is not the case.

You see, it’s typical that companies disclose who their competitors are in their S1s. Seeing as how IWG and no other companies are mentioned by name, we can assume WeWork has no real competitors.

The Right Tools

With a project as complex as this S1, bankers naturally had to create custom tools.

In this case, they invented a new data visualization tool, which looks like a standard x and y-axis data chart, but in fact, has no y-axis.  They use this tool twice in the S1. 

First on pg 5, where they discuss breakeven of new locations. The x-axis shows a breakeven around 6 months without providing any indication of losses and profitability before or after breakeven.

Next, we see it again on pg 84, where they visually show membership cohorts by year without any associated values for these cohorts. 

I love how this new sans y-axis visual encourages us all to use our imaginations when interpreting critical operational data about the business.

An Army of Artists

Last, but not least, we can’t forget to mention the people that made this production possible. 

An army of analysts and advisors combed through every pixel of this document to make sure no reader was able to calculate a single relevant metric that depicted the true operational health of WeWork.

The time and attention to detail this took should not be overlooked. 

If you want to understand the contribution margin of mature units, too bad, it’s not in there. 

If you want to understand revenue per membership, they do provide $6,320 as an average revenue per membership, but this is only for the first six months of 2019 and good luck figuring out what “average” really means. If you can manage that, there is also a disclosure note that indicates that the values on the page are not necessarily representative of what actual results will be.

However, the real artists are the regulatory experts who concluded that the lack of data falls within the SEC guidelines for management discussion of results of operations. 

If only we could have witnessed the creative genius at work where they decided disclosure provision’s like the below were adequately met:

“To the extent that the financial statements disclose material increases in net sales or revenues, provide a narrative discussion of the extent to which such increases are attributable to increases in prices or to increases in the volume or amount of goods or services being sold or to the introduction of new products or services.” (see full text here)

Conclusion

This is a once in a lifetime S1. I don’t think we will ever see a work of art that rivals this for creativity, hard work, or imagination.  The bankers on this deal earned their fee and deserve the academy award equivalent of an Oscar for this impressive production.

My only complaint is that there is no mention of energy and spirituality metrics, I was really looking forward to these.

Have a great weekend everyone!

Danielle

About the author

Danielle O'Rourke

Recovering Investor. Mom. Wife.

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Danielle O'Rourke

Recovering Investor. Mom. Wife.

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