Is WeWork a risky unicorn with an overblown valuation? The co-working space provider has been valued in private markets at a staggering $47 billion after SoftBank’s latest round of funding and that number is raising eyebrows.
”I think the key thing is the company has to give us a valuation that's reasonable, “ said Kathleen Smith, a principal of Renaissance Capital and manager of Renaissance IPO ETF, in an interview with Yahoo Finance’s On The Move, adding that the current valuation “seems to be pretty high.”
“We don't even know what they're proposing in terms of a valuation at this point,” she said. “They just filed a red herring that has a lot of blanks in it.“
WeWork publicly filed paperwork for its IPO Wednesday morning, revealing a net loss of $904 million in its first half of this year, that’s after losing $1.9 billion in fiscal year 2018. The company, officially known as the We Company, is expected to go public as early as next month.
Smith said investors should look at real estate company, IWG (International Workplace Group) as a comp for WeWork. The company trades on the London Stock Exchange.
“If you look at their recent reporting, they have $3 billion in revenue, but they're profitable,” she said, adding that IWG even pays a dividend. Smith said the company doesn’t have the growth of WeWork but it provides a model, not to mention IWG is a lot cheaper for investors.
WeWork is valued at 15 times revenue, significantly higher than IWG, which trades at three times revenue. “So, you have to really believe that that growth is gonna be worth the price that you're paying,“ said Smith.
While it’s too early to accurately gauge investor interest in WeWork, Smith called it the most highly valued U.S. private company right now, since Uber (UBER) had its IPO. But warns, while WeWork is growing very fast there are red flags.
“We are concerned about this IPO. Our experience with IPOs tells us that these very large money-losing companies tend to have a hard time making an entry into the IPO market,” said Smith, referencing the recent IPOS of Uber and Lyft (LYFT).
Yvette Killian is a producer for Yahoo Finance’s On The Move.