WeWork, the New York-based workspace-sharing company, has become engulfed by a storm of problems ever since it announced its plan for an initial public offering (IPO). The company’s plans have not only been doubted by investors but its profitability has also been put under the scanner. Following this, Adam Neumann, the founder of WeWork, has been ousted from the company as his governance and behaviour have been impeached by other board directors as well as investors, as reported by the daily newspaper The Verge. It has been calibrated that WeWork’s valuation would go under USD 20 billion following its IPO release. The estimated valuation is far less than its previous valuation in January this year when it was touted at USD 47 billion, as reported by the news agency Reuters.
The Devaluation Triggers
In January this year, the Japanese investor, Soft Bank, led a funding round of WeWork and gave the company a valuation of USD 47 billion. Besides this, CB Insights, a data company, said that WeWork is the most valuable private start-up venture. So then, after being considered one of the most successful high-valued start-ups, what caused the deceleration of WeWork and postponed its IPO plans? The real answer lies in the underpinnings of this organisation. Under the leadership of Adam Neumann the company had not been attaining profit for a long time. During his tenure, Neumann primarily focused on partying and had severe behavioural issues such as outbursts, three former employees of WeWork told Business Insider.
Owing to a negligible amount of profits, investors balked at the company’s valuation at the time of public offering and thus decided to have Neumann step down from his position of CEO. In his place, two joint CEOs have been commissioned to take charge – Artie Minson, former Co-President and CFO at WeWork and Sebastian Gunningham, former Vice Chairman at WeWork. Meanwhile, Neumann has been placed as non-executive chairman and has been denied any voting rights.
Impact on Investors and Deals
After the departure of Neumann and WeWork’s financial instability, investors, especially Soft Bank, have taken a bad hit. The delay in IPO plans and Neumann’s expulsion from entrepreneurial roles have given way to scepticism towards Soft Bank. Further, the poor performance of cab aggregator Uber and software company Slack in the share market has added pressure on the bank’s Vision Fund. As a result, the assets of the Japanese technology company are being marked down and further, its plans of initiating the second fund, Vision Fund 2, can be undermined, according to news channel CNN.
For another investor, New York-based investment banking firm Jefferies Financial Group, Inc., earnings from WeWork’s stakes has reduced significantly after the company’s devaluation. The third-quarter revenue came in below even the lowest analyst expectations as the company’s merchant banking unit wrote down the value of its investment in We Co. by USD 146 million. Its net revenue fell slightly to USD 777 million despite increases in both fixed income and equities trading, news agency Bloomberg reported, citing a statement made by Jefferies.
Keeping Closure at Bay
WeWork has made losses amounting to USD 3 billion in three years and could sustain in the market for sometime after the first quarter of 2020, the The Guardian reported, citing statements of Chris Lane, an analyst at Sanford C Bernstein and Co. As a cash crunch-like situation can arrive any time now, the newly appointed joint chiefs are taking moves to halt a total shutdown. According to media reports, the management is working on laying off thousands of employees and take other cost-effective measures.
This may include selling a USD 60 million private jet which was bought in 2018. It is reported that around 5,000 employees may be laid off under the cost-reduction strategy. The withdrawal of the IPO filing is another move that the company has taken to focus on its core business. According to CNBC, WeWork has proclaimed that it will withdraw S-1 filing as it seeks to postpone its highly anticipated initial public offering.