Shares of WeWork (WE.N) were close to zero on Wednesday as the once-favorite startup warned it might file for bankruptcy, a remarkable turn of events for a business that was once valued at $47 billion in the private market.
The SoftBank-backed firm has been in disarray ever since its ambitions to go public in 2019 exploded as a result of investors’ backlash over the company’s significant losses, oversights in corporate governance, and the management style of its former founder and CEO, Adam Neumann.
WeWork’s problems persisted over the next few years. Though it finally succeeded in going public in 2021 at a far lower price, it has never generated a profit. Although Japanese firm SoftBank, the startup’s key investor, invested tens of billions to support it, the business has continued to lose money.
According to Steve Clayton, head of equities funds at Hargreaves Lansdown, “WeWork was possibly the most overhyped startup of recent years.”
On Wednesday, the company’s shares ended the day 38.5% lower at 12 cents.
WeWork’s stock has practically lost all of its value since its IPO through a blank-check merger in October 2021; as of Wednesday, it was valued at 13 cents, or around $260 million. There have been many executive departures, including three board members last week and CEO Sandeep Mathrani in May.
WeWork announced on Tuesday that a new CEO is being sought.
The company’s business strategy entails signing long-term leases and short-term rentals for space. Over the years, it grew quickly, but the global coronavirus pandemic made shared office space less desirable.
Interim CEO David Tolley noted on a Wednesday analyst call that “fewer and fewer companies, from mature large-cap businesses to startups, are willing to enter into long-term leases for geographically fixed spaces.”
The continuous issues are a disgrace for SoftBank, which has continued to invest in the business over the past few years. Masayoshi Son, the CEO of that business, had personally backed Neumann and, in 2019, after WeWork’s failed IPO, bailed out the company with $10 billion.
After investing in WeWork, SoftBank suffered losses in the billions of dollars. The company’s supporter later expressed sorrow, saying that his “judgment was poor in many ways and I am reflecting deeply on that.”
WeWork reached an agreement in March to reduce debt by around $1.5 billion and postpone the maturity of some debt in order to save money.
WeWork nonetheless lost $646 million in cash in the first six months of the year, but cost cutbacks helped the company record a reduced net loss of $349 million in the second quarter compared to $577 million a year earlier. At the end of June, it had $205 million on hand.
WeWork may not have a future in its current form, according to BTIG analysts, who downgraded the company to “neutral” on Wednesday. “Flexible workspaces have a future in the office ecosystem,” they added.
WeWork stated that it intended to reduce rent and lease costs, manage expenses, and curb member churn in order to increase liquidity.
The company’s India subsidiary claimed that the unit would not be impacted by the bankruptcy warning.
