WeWork set to halve $47bn valuation amid growing scepticism

6 Sep 2019270 Views

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WeWork in Corrigan Station, Kansas City. Image: WeWork

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According to reports, WeWork could be set to delay its IPO, slash its latest valuation and seek further financing from SoftBank.

Last week, WeWork added another massive acquisition to the pile, with workspace provider Spacious joining its previous purchases, which include Flatiron School, Meetup, Conductor, Designation, Teem and Managed by Q.

This move left many commentators wondering if the company would ever slow down, or if it would continue to hurtle through acquisitions and real estate purchases despite huge financial losses, until the launch of its IPO.

Up until this week, the co-working company was valued at $47bn – though many were sceptical about this figure.

New valuation

On Thursday (5 September), it was reported that the New York-based company has begun to consider targeting a much lower valuation for its IPO, of between $20bn and $30bn. According to Bloomberg, insiders at WeWork expect this figure could be closer to the $20bn mark.

Reports also suggest that WeWork has plans to delay its IPO. While WeWork’s public listing was expected in autumn 2019, the Wall Street Journal reported that this could be pushed to 2020.

Vox pointed out that this isn’t a particularly unusual move for a company nearing its IPO date, as companies often “set the table for a positive narrative to emerge about how it beat expectations”.

However, WeWork has also faced criticism for labelling itself a tech company, and using the word ‘tech’ more than 123 times in its IPO filing, despite providing a service resembling that of a real estate firm.

Jeffrey Langbaum, real estate investment trust analyst, told Bloomberg: “WeWork will still have to convince investors during its upcoming roadshow that it deserves a tech company multiple. We continue to believe that WeWork is a real estate company, not a technology company, and one that appears years away from profitability.”

A WeWork space in Beijing. Image: WeWork

Reena Aggarwal, a finance and business professor at Georgetown University, told the New York Times: “I can’t think of another IPO where they halved the valuation. This certainly shakes up confidence and makes people pause.”

For this reason, it is thought that WeWork may be applying the brakes, rather than setting itself up to exceed expectations. WeWork has declined to comment on the more conservative valuation.

Bloomberg reported that potential terms for the share sale are still being discussed and the valuation will depend on investor demand.

WeWork’s CEO, Adam Neumann, has also reportedly met with SoftBank CEO Masayoshi Son to discuss “a potential capital infusion”. SoftBank and its affiliates own 29pc of WeWork, while Neumann has a stake of 22pc, which will rise to 29pc after the company goes public.

The Wall Street Journal said that investment from SoftBank could be used to further delay the IPO.

New board member

Another point of criticism directed towards WeWork in recent months was the lack of diversity on the company’s board.

On Wednesday (4 September), WeWork announced plans to add its first female board member. The company said that Harvard Business School professor Frances Frei would join the board upon completion of its public offering.

Frei, who is a technology and operations management professor, previously worked as senior vice-president of leadership and strategy at Uber – another SoftBank-backed company that reported huge losses this year.

In a TED Talk about her time with Uber, Frei said: “I was super attracted to going to an organisation that was metaphorically, and perhaps quite literally, on fire.

“I had read everything that was written in the newspapers and that was precisely what drew me to the organisation. This was an organisation that had lost trust with every constituent that mattered.”

Kelly Earley is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com