WeWork cut its profit projections earlier this year by a whopping 78 percent, according to a leaked document that the company claims was “stolen.”
Bloomberg reported Friday on the April document, which shows the co-working and co-living company cut its 2016 profit projection to $14 million from $65 million, and its revenue projection by 14 percent to $532 million from $620 million. The culprit, according to the startup: Delays in the opening of new locations, higher-than-expected build-out costs, and lower-than-expected landlord concessions. While WeWork still appears to be growing at a rapid pace and is, unlike many other startups, profitable, the document indicates that its early growth plans may have been overly optimistic.
At a May 9 all-hands meeting, the company’s co-founder and CEO Adam Neumann bemoaned a spendthrift culture at the startup, which was most recently valued at $16 billion.
“We did not use to be this way,” he said in a video of the meeting seen by Bloomberg. “We used to fight for every dollar. We did not spend.”
He said he canceled a weekly Monday morning $350 salmon and bagel breakfast for the firm’s executives, and asked employees to turn off the lights at night. In a May 23 meeting, he reportedly told employees “the universe does not allow waste.”
The drop in expected revenue is primarily due to delays in the opening of new spaces, according to Bloomberg. Once locations have been open for six months, they produce an average profit margin of 33 percent, WeWork claims in the financial review document.
Meanwhile, the company lowered its expectation for how much of average build-out costs landlords will assume in 2016 to 54 percent from 75 percent. But at the same time it raised its projection for 2017 to 80 percent from 75 percent. According to Bloomberg, the company has struggled to win landlord concessions in overseas markets like Seoul, Shanghai and Mexico City, which drives up its costs and shrinks profits. The firm expected to spend $100 million more in capital expenditures than originally planned.
WeWork told Bloomberg that the document was stolen and that it “referred this corporate theft to the U.S. Attorney’s office.” [Bloomberg] – Konrad Putzier