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WeWork IPO filing says it’s ready for a recession — Quartz

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WeWork is worried about a recession.

The office-rental company warned in its filing for an initial public offering, released publicly today, that an “economic downturn or subsequent declines in market rents” could cause WeWork members to cancel and hurt its operations.

“While we believe that we have a durable business model in all economic cycles, there can be no assurance that this will be the case,” WeWork said in its filing. “A significant portion of our member base consists of small- and mid-sized businesses and freelancers who may be disproportionately affected by adverse economic conditions.”

WeWork, which changed its name earlier this year to The We Company, makes money by leasing office space from landlords, dressing it up with industrial-chic decor and beer-on-tap, and renting it out at a premium to tenants in return for more flexible terms.

When WeWork got started in 2010 in New York City, most of its members were freelancers, startups, and small businesses. WeWork has in recent years pushed to sign on more members from large companies, in part because these tenants are safer revenue bets.

That shift is especially important if you believe the economy is headed for a downturn or recession. WeWork is in many ways a top layer on a bubble: lots of its users are startups kept afloat by generous funding from venture capitalists. If that money goes away, or the market goes south, it could put many WeWork users in a tricky spot and lead to them cancelling their memberships.

Although almost every company warns investors that a recession could hurt its business, this is a more pressing worry for WeWork because it doesn’t know what will happen to it in a recession: it hasn’t had to weather one yet. “In a downturn, we expect that businesses will search for more flexible and lower cost alternatives,” the company says in its filing.

With prices that start at around $400 for an unassigned “hot desk” in New York, that could imply that those businesses look for office space somewhere other than WeWork.

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