WeWork to go public via SPAC – but can it convince investors it’s worth the investment?
You know the old saying – if at first, you lose forty billion dollars, try, try again.
Office space, beer and community disguised as innovation
WeWork was once one of the most promising startups of the decade. The company’s coworking business was simple – sign a long-term lease, renovate the workspace (fill it with beer and call it “innovation”) and rent it out to tenants, at a premium price of course..
With over 425 global locations and having raised over $12b in funding, WeWork was ready to go public. In Aug. 2019, WeWork released their highly anticipated S1 filing and investors got a first look at its business. But investors didn’t like what they saw…
Shady business practices, outrageous expenses ($42k spent on building a kindergarten) and massive losses – the filing was filled with red flags. Facing investor backlash, WeWork’s IPO was canceled and its CEO, Adam Neumann, was replaced.
In early 2020, WeWork’s valuation fell to $2.9b – less than a tenth of the $47b valuation it was trying to go public at. WeWork became a spectacular failure.
A very tough sell
Barely a year later, WeWork is having another try at going public. With a new CEO in place, WeWork spent the past year transforming the business with a focus on cutting costs.
But it isn’t easy when COVID reduces high-rise office demand by 25%. Here’s how WeWork did in 2020:
- $3.21b in sales – down 1% from the previous year
- $3.22b in losses – down from $3.5b in the previous year
- $49m in capital expenditures – down from $2.2b in the previous year
WeWork projects a fast rebound to 90% occupancy – an optimistic number given its pre-pandemic occupancy rate of 72%, which dropped to 47% at the end of COVID.
For investors… Fool me once…
WeWork suffered a major blow to its reputation when its 2019 IPO imploded. To avoid the same fate a second time around, they’ll have to
- Stop the bleeding – i.e. cut its losses, significantly
- Convince workers to come back in the office and prove it can become profitable
As remote work becomes more common, companies could be more likely to adopt flexible workspaces/leases. This could benefit WeWork and its biggest competitor Regus (LON: IWG).
Food for thought: WeWork is going public at a valuation of $9b… While the company is losing nearly $3b every year – a third of what it’s worth 🤯