WeWork, a startup once valued at $47 billion, is now on the verge of bankruptcy. Shares in the Wall Street-listed company hit 13 cents on news of the once-favorite investor’s dire condition.
WeWork shares fell sharply on Wednesday after the once-beloved startup warned it could go bankrupt.
WeWork has been going through major turbulence since 2019. It then tried to go public for the first time, but many investors pulled out due to its huge losses, corporate governance failings and the management style of then-founder and CEO Adam Neumann.
“Probably the most overrated startup”
According to Reuters, WeWork’s woes continued unabated in the years that followed. The company managed to go public in 2021 after a significantly reduced valuation, but it never turned a profit. The agency notes that its “main sponsor”, Japanese financial conglomerate Soft Bank, has sunk tens of billions in an attempt to support the startup, but it has failed and the company continues to lose money.
“WeWork was probably the most overrated startup in recent years,” said Steve Clayton, head of venture capital at Hargreaves Lansdown.
One of the offices of WeWorkKevin Bruce Photos / Shutterstock.com
The pandemic didn’t help
Since its October 2021 debut, WeWork shares have lost almost all of their value and were trading at 13 cents on Wednesday, valuing the company at $260 million. Many directors have left, including CEO Sandeep Mathrani in May and three board members this week. The company said on Tuesday that it was looking for a new CEO.
The company’s business model assumes the conclusion of long-term lease agreements and short-term rental of space. It has grown rapidly over the years, but the COVID-19 pandemic has made shared office space less attractive.
Fewer and fewer companies, from mature big-caps to startups, are willing to enter into long-term office leases, interim chief executive David Tolley said during a call with analysts on Wednesday.
The president of SoftBank expresses his regret
Reuters notes that the company’s current problems are a painful blow to SoftBank, which has supported it with billions of dollars in recent years. Company boss Masayoshi Son personally backed Neumann and bought WeWork in 2019 for $10 billion after a failed IPO.
SoftBank suffered billions of dollars in losses investing in WeWork. The CEO of a Japanese bank expressed regret for his support for the company, saying that his “rating was poor in many respects and he deeply reflects on it.”
In March, WeWork reached an agreement to reduce debt by about $1.5 billion and extend some maturities to save cash. Cost cuts helped WeWork post a lower net loss of $349 million. in the second quarter from $ 577 million. a year ago, but still the loss amounted to nearly USD 650 million. in cash in the first six months of the year. At the end of June, the company had $205 million.
“Flexible workspaces have a future in the office ecosystem, but WeWork in its current state may not have it,” BTIG analysts wrote on Wednesday, downgrading the stock to “neutral”.
WeWork said it plans to increase liquidity by lowering rent and lease costs, controlling expenses and reducing customer churn.
photo-source">Main photo credit: Kevin Bruce Photos / Shutterstock.com
2023-08-09 18:46:26
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