Before we chat about the business fundamentals of Ucommune, a primer on the company itself.
According to is F-1 filing, Ucommune operates 197 co-working facilities in 42 cities.
As a primer for all you non-accountants, here’s how you make money as a company: First, generate some revenue.
As you can quickly see, the more gross profit a business generates from its revenue, the more money is has left over to pay for operating expenses.
So, revenues that generate lots of gross profit — called high-margin revenue — are better than those that don’t.
Ucommune, our IPO hopeful, is unique in that its revenue doesn’t generate any gross profit at all.
And that means that you have no gross margin available to fund operating costs.
The first enterprise is co-working, which generated just less than half of the company’s total revenue during the first three quarters of 2019.
For example, the company’s $58.7 million in co-working revenue earned during the first nine months of 2019 was nearly entirely offset by lease costs ($49.6 million) alone, before the company staffed and otherwise managed the locations in question.
Ucommune’s services arm, therefore, was more lucrative in terms of generating gross margin for the co-working company than its actual co-working business.
Ucommune had cash and equivalents of $23.4 million and short-term investments worth $11.0 million at the end of Q3 2019.
That’s $33.4 million in total that the company can access, presuming that every short-term investment is unwindable into cash inside the window in which Ucommune would need to access it.
But instead of demonstrating operating leverage (losing less money as its revenue grew), the company lost more money this year than the last, making its business appear likely to keep burning acres of cash while it grows.