NEW YORK (Reuters) - WeWork Cos, the fast-growing coworking company gobbling up commercial office leases, said on Thursday its second-quarter sales more than doubled from a year earlier as it added new members at a quickening pace, but losses also mounted.
In its first ever release of financial results, the privately held firm said total revenue rose to $421.6 million from $198.3 million in the year-ago quarter as memberships jumped to 268,000 at the end of June from 128,000 a year earlier.
Net losses jumped to $723 million over the second half of 2018 from $154 million a year earlier.
Occupancy rates at locations increased 6 percentage points from last year’s second quarter to 84 percent. Operating margins, stripping out expenses, rose to 28 percent from 26 percent, the New York-based company said.
Chief Financial Officer Artie Minson said WeWork has a mismatch in its profit and loss statement because revenues from sites that will open later this year and in early 2019 lag months behind expenditures made now.
“We incur the expense today and the revenue and the operating margin of those buildings will come on next year,” he told Reuters by telephone.
Minson said that if revenues based on June figures were extrapolated over a full year, WeWork would have a “run-rate” of $1.8 billion and is poised to surpass a pace of $2.3 billion by year’s end.
WeWork provides office space in settings where services are shared for individuals to companies with more than 1,000 people, a segment that now accounts for one-quarter of its revenue.
Brokerage Cushman & Wakefield said WeWork is on the verge of taking over JPMorgan as the largest occupier of office space in New York.
WeWork said it has reduced capital expenditures through steps like a 20 percent cut in the cost per desk, or space one member occupies. This shows margins can be improved, it said.
Cash and commitments of about $4 billion were available at the end of June. This included $500 million recently raised in China, a $1 billion subordinated convertible debt commitment from major investor SoftBank Group and $600 million in prior commitments from SoftBank.
News of the debt was announced on Thursday.
Some cash burn can be expected with any company growing at a blazing clip, said Alex Snyder, a senior analyst at real estate-focused Center Investment Management LLC in Philadelphia.
Expenditures often outstrip revenue to build a business that attempts to create massive value, said Snyder, noting that Amazon.com did not turn a profit for years.
“All of this is to build the platform that eventually should allow them to make far more than if they didn’t spend so much upfront,” he said, while cautioning the strategy can also go wrong.
If a company stumbles on such an enormous build-out it would be like tripping while in full sprint, he said. “The fall is likely to hurt.”
WeWork has raised $8.1 billion from 12 funding rounds, according to website Crunchbase, more than half from SoftBank, in addition to $702 million in bonds whose sale in April forced the company to divulge its results because the security is public.
Reporting by Herbert Lash; editing by Daniel Bases and David Gregorio
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