Two years after WeWork’s attempt to go public, it failed spectacularly, the coworking giant will start trading in the stock market on Thursday, hoping investors will now believe in its prospects.
Previous efforts have met with concerns about WeWork’s dizzying growth, huge losses, and the troubling management style of its co-founder Adam Neumann. WeWork has emerged with new leaders who have cut their costs and are looking to leverage the office space market that has been overturned by the pandemic. But the company still has high growth targets, big losses and many empty desks in 762 offices around the world.
“We are the right company at the right time,” Sandeep Matrani, CEO of WeWork, told investors this month. “I came to this company with an inverted cost structure. Over the past 20 months, we have focused on optimizing our operating costs and optimizing our real estate portfolio. ”
Instead of an initial public offering, WeWork is entering the open markets through a merger with a specialized acquisition company, or SPAC, which is a bit of a craze these days and will trade under the ticker WE. He is expected to receive up to $ 1.3 billion as a result of the deal, which includes shares held by investment companies BlackRock and Fidelity. Ahead of Thursday’s listing, WeWork said it was valued at nearly $ 8 billion, a fraction of the company’s $ 47 billion valuation before investors gave up on it in 2019.
WeWork rents office space and charges membership fees to clients including freelancers, startups, and small and large businesses to use them. His business is based on the belief that people can prefer the flexibility of such an arrangement to a traditional office lease, which can last for years and have other burdensome conditions.
While flexible office space was nothing new, WeWork said their business could not only revolutionize the way people work, but also change the way they live and think. Mr Neumann raised billions of dollars in investment, the largest of which came from SoftBank, the Japanese conglomerate that ultimately bailed out WeWork when it pulled back its IPO in 2019 and found itself on the brink of bankruptcy.
Investors in WeWork must decide whether SoftBank will take advantage of any increase in the share price to sell a portion of its 61 percent stake.
SoftBank may be looking to recoup the $ 16 billion it invested in WeWork, an amount that includes nearly $ 11 billion in equity investments, $ 5 billion in debt financing and payments to Mr. Neumann.
“I made the wrong decision,” SoftBank CEO Masayoshi Son said last year. “I looked at WeWork the wrong way.” SoftBank agreed to limit the number of votes in the company to below 50 percent.
The pandemic that has devastated office towers around the world has also disrupted WeWork’s business.
Traditional homeowners survived because tenants were legally required to keep paying rent for many years, most of which remain. But WeWork customers were able to terminate their much shorter-term agreements after they expired. WeWork posted revenue of $ 593 million in the second quarter of this year, well below the $ 988 million in revenue the company reported for the first quarter of 2020, its peak quarter.
And that partly explains why the company spends money instead of generating it. In the first half of this year, WeWork spent $ 1.31 billion in cash on its operations and purchases of fixed assets, up $ 1.15 billion in the same period in 2020.
However, WeWork has made great strides in reducing operating costs. Some of the biggest savings come from renegotiating or leaving leases with landlords. “In the year to date, we have completed over 150 full leases and made 350 lease changes,” Mr Matrani told investors this month. “This has contributed to a significant reduction in our rental and rental costs, resulting in savings of about $ 400 million per year.”