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Is WeWork Back Up To The Same Old Tricks That Torpedoed Its First Attempt To Go Public?

The second-floor common area in WeWork's 1701 Rhode Island Ave. NW space in D.C.

WeWork's new strategy for going public is beginning to have uncomfortable echoes of the disastrous initial public offering attempt that tanked its value in 2019.

The coworking giant announced in late March its intent to merge with BowX Acquisition Corp., a special-purpose acquisition company founded and chaired by Sacramento Kings owner Vivek Ranadive. In promoting that deal to potential investors, WeWork used projections and financial calculations that reminded some of the talking points pushed by co-founder Adam Neumann that caused investors to balk at its 2019 IPO prospectus and ultimately resulted in Neumann's ouster as CEO, The Wall Street Journal reports.

In the investor call, Ranadive said WeWork could bring in $5B in annual revenue "just with their existing capacity," despite its internal projections pegging 2023 as the year when it would crack that number, the WSJ reports. WeWork's pitch also listed the company with over 850 locations and 450,000 memberships, numbers only possible when including WeWorks in China and India, which have been spun off and are not part of the entity attempting to go public.

WeWork is just one in an explosion of startups going public through SPACs, a process that comes with less regulatory scrutiny than a traditional IPO, but it still requires some financial disclosures to the Securities and Exchange Commission. Those disclosures are expected later this month from WeWork, and should they match the numbers in its investor pitch, the SEC could "push back hard," corporate finance law professor Minor Myers told the WSJ.

Among the possible sticking points for the SEC is how WeWork calculates profitability. In 2019, the regulatory commission ordered WeWork to be more conservative in underwriting how much revenue its "mature locations" would generate for the company, the WSJ reports. That "mature location contribution margin" was 21% in 2019, but the company's current pitch has a similar metric, called "mature building margin," which it calculated as 27% based on portfolio data also dating to 2019.

WeWork CEO Sandeep Mathrani also touted to investors this year the possibility that the company's best locations could eventually operate above 100% occupancy, considering the membership model. WeWork dropped a similar projection from its IPO prospectus after the SEC objected in 2019, the WSJ reports.

WeWork contested the characterization of its financials as misleading in a statement provided to Bisnow, attributed to a spokesperson.

“With a new management team in place, WeWork spent the last year working diligently to improve the fundamentals of the business with a renewed commitment to ensuring our financial disclosures — whether quarterly earnings or our merger announcement with BowX — continue to meet SEC standards," the statement read. "As we move forward in the SPAC process, we have a fully subscribed $800m PIPE which includes investors like Starwood Capital Group, Fidelity, Insight Partners, and BlackRock. We will always work with the SEC to ensure our disclosures comply with their requirements."

UPDATE, APRIL 19, 5:20 P.M. ET: This article has been updated to include a statement from WeWork.