WeWork isn’t working, wants to go public anyway (again)

By Robert Scammell

WeWork, a real estate company that styles itself as a tech firm, has told investors that it notched up losses of $3.2bn in 2020 as it sought additional funds ahead of another potential public listing.

According to documents seen by the Financial Times, over half (53%) of its co-working spaces sat unoccupied at the end of 2020, down from 28% unoccupied at the beginning of the year.

WeWork’s business model is to take out long-term lease contracts on office buildings, spruce them up and then re-rent the space to startups and small businesses under flexible terms.

This arrangement made WeWork particularly exposed to the pandemic. While small businesses cancelled flexible co-working contracts to work from home, WeWork remained committed to its hefty lease payments.

Despite the pandemic, WeWork managed to narrow its losses by $300m, down from $3.5bn in 2019. This was largely due to slashing capital expenditure from $2.2bn in 2019 to $49m in 2020.

According to GlobalData’s Intelligence Centre, WeWork went on a selling spree in 2020, divesting Meetup, Teem and Managed by Q Services.

WeWork’s woes existed long before the pandemic. Under the chaotic leadership of co-founder Adam Neumann, the company became one of the hottest companies in the world before nosediving in spectacular fashion.

The scaleup was valued at $47bn at its peak in 2019. But as investors scrutinised the company ahead of a planned initial public offering (IPO), WeWork’s losses and profligate spending – including a $13.8m investment in artificial wave company – saw its stock market debut scrapped and its valuation dashed.

Long-time backer SoftBank threw WeWork a multibillion-dollar rescue package and Neumann left the company as part of a last-ditched attempt to save the business.

Co-working SPACe

Despite seeking an additional $1bn from investors to stay afloat, WeWork now appears ready for a second attempt to go public.

This time WeWork is eyeing a $9bn valuation, including debt, via a merger with a special purpose acquisition company (SPAC), per the FT.

SPACs are blank cheque companies that raise funds via an IPO to then combine with a private company. Such arrangements come with less scrutiny than traditional IPOs.

According to the leaked documents, BowX Acquisition Corp is in discussions to be WeWork’s SPAC.

The documents show that WeWork continues to view itself as a tech firm, describing itself as a “worldwide technology platform”.

WeWork appears to be betting on improving its fortunes in a post-pandemic world where hybrid working increases demand for co-working spaces.

WeWork projects occupancy to rebound to 90% by the end of 2022, with EBITDA (earnings before interest, taxes, depreciation, and amortisation) expected to reach $485m.

Verdict has contacted WeWork for comment.

Read more: SoftBank managing partner: ‘We learned our lesson with WeWork’