WeWork building turns profit, but business still making a huge loss

WeWork’s CEO Adam Neumann.
Getty

• Office sharing company WeWork has reported that its
  flagship London building became profitable in 2017.
• This is important because sceptics have always
  questioned whether WeWork’s model of leasing buildings, making
  them look cool, and renting out desks would work.
• Filings for its overall UK business show WeWork’s
  losses nearly tripled, which the firm attributes to its rapid
  growth.

WeWork’s European flagship building in London turned a profit in
2017, in what the fast-growing office sharing startup will see as
a vindication of its model.

WeWork filed its first accounts for its building in Moor Place,
London, covering the year to December 2017, and shared the
details with Business Insider.

The earnings show a big jump in operating profit from 2016, and
revenue exceeding administrative expenses for the first time.

Here are the key numbers for the year to 31 December
2017:

• Revenue: £25.2 million ($35 million), up 21%
  from £20.8 million (£27.1 million) in 2016.
• Administrative expenses: £23.6 million ($31
  million), up 8% from £21.9 million ($29 million).
• Operating profit: £1.6 million ($2 million),
  up 449% from £29,127 ($38,000).
• Pre-tax profit: £1.6 million ($2 million), up
  780% from a loss of £181,664 ($237,000).

One
of WeWork’s London buildings.
WeWork

WeWork is headquartered in the US and has attracted a reported
$8.1 billion (£6.2 billion) in venture capital by fitting up and
leasing out building space as shared offices. It bills itself as
more community-oriented than other shared office rivals, and its
workspaces are known for their free beer, chic furniture, and
bright working environment.

The company is hugely hyped partly because it has attracted half
its funding from Japanese giant SoftBank, and because of its
rapid growth. It also attracts ridicule for its language around
community, and for
what is perceived to be a cultish culture.

A profitable workspace is good news, but WeWork has several
hurdles to clear before it can convince sceptics.

WeWork’s UK losses nearly tripled

Separate filings for WeWork’s overall UK business show that its
losses nearly tripled. Doubters ask whether the revenue WeWork
makes from renting out desks to startups and enterprises will
ever exceed its ballooning expansion costs.

The company has argued that it incurs significant expenses
because it’s growing so fast, and it costs a lot of money to
lease out new offices and fit them up in the WeWork style.

Here WeWork’s overall UK earnings for the year to 31
December 2017:

• Revenue from WeWork memberships: £118.3
  million ($154 million), up 97% from £60.9 million ($79
  million).
• Administrative expenses: £163.2 million
  ($213 million), up 96% from £83.1 million ($104 million).
• Pre-tax loss: £32 million ($42 million), up
  190% from £11 million ($14.3 million).
• Staff costs: £12.4 million ($16.1 million), up
  106% from £6 million ($7.8 million).
• Number of staff: 198, from 97.

CFO Artie Minson told Business Insider in a call that he was
“really pleased” with the UK’s performance, as it was one of
WeWork’s most competitive markets. He said WeWork’s buildings in
London and globally were “highly profitable.”

The company now has £3.2 billion in UK lease commitments over the
next 20 years, a spokeswoman confirmed. This is a bold bet given
the UK exits the EU in 2019, which may lead to a downturn that
affects the property market. Businesses may also leave the UK,
leading to reduced demand for office space.

“We continued to be incredibly excited about the UK market,”
Minson said. “I do think, because our product is so compelling,
there would continue to be significant demand for our products
and services, even with Brexit as a backdrop.”