The success of WeWork, the coworking company, depends in large part on whether its tenants have relatively stable and viable jobs—which often means working for a larger employer. And the share of WeWork members employed by bigger companies is rising, the company said in its filing for an initial public offering, released today.
When WeWork first opened for business in 2010, its members were largely freelancers, small businesses, and startups. Now the company says 40% of its members work for companies with 500 or more full-time employees, up from 30% a year ago, and that enterprise members are its fastest-growing type of membership.
WeWork, or The We Company as it rebranded earlier this year, makes money by leasing office space from landlords and renting it out at a premium to tenants on flexible terms. The company’s pitch to larger employers is that it can offer a “variety of space solutions” that can “meet an enterprise’s distinct needs on a flexible and cost-effective basis with availability around the world.” For instance, WeWork says it could supply a company with anything from a regional headquarters to a “group of on-demand workstations.”
Enterprise members are attractive to WeWork because they tend to sign deals with longer terms and more tenants, and account for a greater share of revenue at a single location. Having more stable tenants in turn makes WeWork more attractive to investors. The flip side, as WeWork warns in its filing, is that a cancellation by an enterprise member could have a disproportionately large effect on its cash flow and building-occupancy rates.
WeWork increased its focus on enterprise clients in 2017, when it started selling design, construction, and office-management services to enterprise clients, a package it calls Powered by We. The thinking was that custom spaces managed by WeWork would be more attractive to large companies than the standard desk and private office offerings. WeWork has signed major deals with companies including IBM, Facebook, Microsoft, and UBS.
Earlier this year, WeWork quietly changed its definition of “enterprise” from a company with more than 1,000 employees to one with more than 500. The change pushed WeWork’s share of enterprise members in 2018 up to 37% from 32%. Despite that, WeWork’s enterprise membership percentage fell from 41% in the first quarter of this year to 40% in the second quarter, though it remains up year-over-year.
The majority of the company’s members are still freelancers and small and mid-sized businesses, who, as the company admits in its IPO filing, “may be disproportionately affected by adverse economic conditions.”