WeWork, a once highly valued startup, saw its shares nearing zero on Wednesday as it issued a warning of potential bankruptcy. This marks a stunning reversal of fortune for a company that was previously assessed at a private valuation of $47 billion.
The company, which received backing from SoftBank, faced significant turmoil since its attempt to go public in 2019 collapsed. Investor backlash against substantial losses, issues in corporate governance, and the management approach of its then founder-CEO Adam Neumann triggered the downfall.
WeWork’s challenges persisted in the subsequent years. Its public debut finally occurred in 2021, but at a much lower valuation. Despite its attempts, the company has yet to achieve profitability. SoftBank, a major supporter, injected billions to sustain the startup, yet losses have continued to accumulate.
Statement by Steve Clayton, head of equity funds at Hargreaves Lansdown: “WeWork emerged as possibly the most excessively hyped startup in recent times.”
Share Performance: The company’s shares concluded Wednesday 38.5% lower at 12 cents.
Share Value Decline: Following its launch via a blank-check merger in October 2021, WeWork’s shares have virtually plummeted, currently trading at 13 cents on Wednesday, resulting in an approximate $260 million valuation.
Executive Departures: Several key executives, including CEO Sandeep Mathrani in May and three board members this week, have left the company.
Search for New CEO: WeWork announced on Tuesday that the quest for a new CEO is underway.
Business Model: WeWork’s strategy involves obtaining extended leases and renting out spaces for short durations. It underwent rapid expansion, but the global pandemic reduced the appeal of shared office spaces.
“Fewer and fewer companies, from mature large-cap businesses to startups, are showing willingness to commit to long-term leases for fixed spaces,” stated interim CEO David Tolley during an analyst call on Wednesday.
The persistent challenges represent a setback for SoftBank, which continued to inject funds into the company for years. The head of SoftBank, Masayoshi Son, personally supported Neumann and provided a $10 billion bailout to WeWork in 2019 after the failed IPO.
Following the WeWork investment, SoftBank incurred significant financial losses. Son later expressed remorse for his endorsement of the company, admitting to poor judgment and deep reflection on his decisions.
In March, WeWork finalized an agreement to slash its debt by around $1.5 billion and extend certain maturity dates, aimed at conserving cash.
WeWork’s cost-cutting efforts led to a reduced net loss of $349 million in Q2, down from $577 million last year. Despite this improvement, the company still used up $646 million in cash during the first half of the year, leaving $205 million as of June’s end.
While flexible workspaces hold promise, BTIG analysts downgraded WeWork’s stock to “neutral,” stating concerns about its current viability within the office ecosystem.
WeWork plans to enhance liquidity by slashing rent, managing expenses, and curbing member turnover.
The company’s Indian division assured that the bankruptcy warning wouldn’t impact its operations.