WeWork Considers Cutting Its Share Offering By Half, No Word Yet On Delaying Anticipated IPO

Real Estate

Topline: WeWork parent firm We Co is considering slashing its share offering by half, which could take the company’s valuation to $20 billion in its anticipated IPO and far below the $47 billion that the fast-growing real estate firm, with hundreds of office-sharing spaces worldwide, was valued at in January.

  • According to reports, the company’s financial advisors could seek a valuation of $20 billion to $30 billion in its initial public offering. It is not yet known whether We Co will advance with its IPO this month as planned following its filing in August, or delay it.
  • Concerns around corporate governance and the nine-year-old firm’s business model have been previously raised, including founder and CEO Adam Neumann borrowing millions of dollars from the firm at a low interest rate, to buy property for WeWork to lease.
  • Other concerns lie in the firm’s multiple-class share structure, which allows founders to retain more control of the company. It leaves shareholders “powerless to deal with any kind of mismanagement,” Charles Elson of the University of Delaware, told the Guardian. Under the system, certain shareholders will have greater voting powers, according to their class.
  • The firm also acknowledged in its filing last month that its growth “may not be sustainable.” Despite rapid expansion, We Co has experienced losses just as dramatic, draining $1.9 billion last year compared with $1.8 billion in revenue.

Crucial quote: “We have a history of losses and, especially if we continue to grow at an accelerated rate, we may be unable to achieve profitability at a company level,” the firm stated in its IPO prospectus.

Key background: WeWork, which rebranded to the We Company, or We Co in January, has experienced astronomical growth in just nine years. The firm, which subleases stylish co-working office spaces from building owners for companies to rent, flexibly boasts 527,000 members across 111 countries and has grown to 528 locations in June 2019, from 2 in 2010.

However mounting operating expenses, changes in the way that the firm measures its financial health and negative cash flow have thrown its long-term sustainability into doubt. Neumann’s motives have also been questioned after he sold the rights to the “We” trademark to his own company, personally netting nearly $6 million. WeWork recently said that Neumann had paid the money back.

There are also concerns over WeWork positioning itself as a tech company, instead of a real-estate firm, to justify its valuation.

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