Famed IPO Analyst Call WeWork Prospectus "Masterpiece Of Obfuscation"

Last week, when WeWork filed its highly anticipated prospectus for the upcoming IPO that seeks to value the company as much as $50 billion, we shared the one chart that summarized - we thought - all that was wrong with the company: the fact that even as revenue has risen, and it has to rise much, much more for the company to ever grow into its massive valuation - it has burned ever more cash.

As it turns out there was much more that was wrong with said offering, as Triton Research CEO Rett Wallace, an analyst who specializes in IPOs with a record of prescient IPO predictions including warnings about Uber and Lyft, found.

"The prospectus is a masterpiece of obfuscation," he said in a Bloomberg interview, saying that "if the underlying facts were positive, why would a company go to so much trouble to prevent you from understanding them?"

He was referring to the prospectus of a company whose stated goal is "elevating the world’s consciousness", and which envisions a total addressable market of roughly one million members per city, across 280 cities worldwide, with a total addressable market of $1.6 trillion.

According to Wallace, the brave new world outlined in WeWork’s filing sounds more like an episode of Black Mirror than a clear picture of what the company is actually becoming.

"We don’t have to extrapolate much from the baseline of the big-vision, low-clarity disclosure to arrive at this new place WeWork has taken us, where a company that rents out small offices with community beer and ping-pong can claim, without irony, that its mission is to 'elevate the world’s consciousness'."

Besides merely focusing on the addressable market size - a preferred gimmick for most recent Silicon Valley darlings who are burning through billions in cash to capture market sure - and semantic hyperbole, Triton also saw other instances of "high levels of obfuscation" in the WeWork’s filing. For example, the company stops counting sales and marketing expenses at a given location once it’s been open for two years - but the spending doesn’t actually stop after that. Instead, it counts as an operating expense, Triton said.

Additionally, WeWork’s filing doesn’t disclose the dates of when its locations opened or when the spending at a given location will switch into the operating expense bucket. Worse, like government agencies, WeWork labels some compensation as investments.

"When you make it impossible for people to have data-driven conviction, then everything is just sentiment,” Wallace said. "sentiment can come and go, especially in a volatile tape like this" as investors in last year's marijuana darlings found out the hard way.

Needless to say, a company with a spaghetti org chart and three classes of common stock does not exactly scream transparency.

And, as he further told Bloomberg, the lack of disclosure becomes even more apparent when contrasted with other IPO filings that are more direct: "When companies fight you on understanding the basic proposition of the mouse trap, it’s always bad. People who have good mouse traps say, ‘This is the thing: You put the cheese in, the trap is designed to never break your thumb, and it catches mice nine times out of ten'."

Of course, there is a simple reason to shift investor focus to just what the new and improved mouse trap is - it is to deflect attention from the chart at the very top.

Having correctly warned that both the Lyft and Uber IPOs would slump, now the IPO-focused research firm says WeWork’s business model looks even worse than those of its ride-sharing comparables. For example, if nobody uses a ride-sharing app all day, Uber and Lyft don’t have to pay their drivers. But if all of WeWork’s monthly tenants leave, the company is on the hook for an average lease duration of 15 years.

"They make lip service in the document to how they believe - a notion held without evidence - their business will be just
as good in a down cycle because of the flexibility that’s offered," Wallace said. “It’s just not a lot to go on when you’re looking at tens of billions of dollars of lease commitments. We don’t know if they can keep the current footprint full, or if they will be able to fill the future footprint at all.”

In that regard, as Bloomberg sarcastically noted, the only thing scarier than WeWork achieving its global goals is the prospect of holding equity as it fails.