The earlier effort was marred by concerns about WeWork’s haphazard growth, its heavy losses, and its co-founder’s dangerous management style. Adam Newman. WeWork has new leaders who have scaled back their expenses and hope to take advantage of an office space market that has risen above the pandemic. But the company still has big growth targets, big losses and many empty desks in its 762 locations around the world. And WeWork has made it through the past two years only because of huge financial support from softbank, the Japanese conglomerate that is the largest shareholder of WeWork.
“We came down a different road than we anticipated, but here we are,” Marcelo Clare, WeWork’s executive chairman and a senior SoftBank executive, said in an interview with CNBC on Thursday.
Instead of an initial public offering, WeWork entered the public markets by merging with a special-purpose acquisition company, or SPAC, which is a craze these days. The deal is expected to raise up to $1.3 billion, an amount that includes stakes held by investment firms BlackRock and Fidelity. At Thursday’s stock price, WeWork is worth about $9.5 billion, a fraction of the $47 billion valuation it placed on the company before investors turned it down in 2019. Shares in SPAC, called BowX, were issued this month at $10. On Thursday, the new WeWork share — with the ticker symbol WE — closed at $11.78.
WeWork leases office space and charges a subscription fee to clients – including freelancers, startups and small and large businesses – to use it. Its business rests on the belief that people may prefer the flexibility of a traditional office leasing arrangement, which can last for years and have other cumbersome conditions.
Although flexible office space was not new, WeWork said its business could revolutionize not only the way people work, but the way people live and think. Newman attracted billions of dollars in investment, with the largest coming from SoftBank, which pulled out of its 2019 IPO and ended WeWork in danger of bankruptcy.
Investors in WeWork must decide whether SoftBank will use any increase in the stock price to sell off some of its 61% stake.
SoftBank may be eager to recover the $16 billion sunk in WeWork, an amount that combines equity investments of about $11 billion, debt financing of $5 billion and payments to Newman.
“I made the wrong decision, SoftBank chief executive Masayoshi Son said last year. “I didn’t see WeWork as right.
SoftBank has agreed to reduce its voting power in the company by 50%. SoftBank and other investors have to wait several months to sell their shares.
The pandemic, which emptied office towers around the world, also crushed WeWork’s business.
Traditional landlords survived because tenants were legally obligated to pay off their years’ leases, most of which remain in effect. But WeWork customers were able to end their very short-term agreements as they expired. WeWork’s revenue for the second quarter of this year was $593 million, down from the $988 million in revenue it reported for its peak quarter in the first quarter of 2020.
And that partly explains why the company is using cash instead of generating it. In the first half of this year, WeWork consumed $1.31 billion in cash to run its operations and purchase assets and equipment, up from $1.15 billion in the same period of 2020.
Still, WeWork has made progress in cutting its operating expenses — and expects to become profitable if its revenue grows. Some of the biggest savings have come from renegotiating or exiting leases with landlords.
WeWork CEO Sandeep Mathrani said this month that the company has run out of more than 150 completed leases and has made 350 lease revisions so far this year.
“What we did through the pandemic was the cost structure, the right size of the company,” he said in an interview with CNBC on Thursday.
Perhaps the biggest question at WeWork is whether it will suffer in a recession that is accelerating some of the biggest office space markets or find an opening into a world of work reopened by the pandemic.
Occupancy levels in office towers in cities such as New York, Chicago and San Francisco, among WeWork’s biggest markets, are still well below pre-pandemic levels – and they may never return, as many companies lay off employees at full capacity. in part or in part. House. In this environment, companies are vacating their positions when leases expire or sublet them. As a result, record amounts of office space are being dumped into the market, and rents have plummeted.
Industry experts say this could hurt WeWork in some ways. Fewer workers moving to cities means less business for all office space operators, including coworking companies. Falling office rents can reduce WeWork’s appeal and reduce what it can charge.
John Arenas, CEO of Serendipity Labs, a flexible office company, said urban coworking companies “are facing competition from Sublet, and resistance and uncertainty about going back to work.”
WeWork has a lot of empty desks. In the third quarter, it had 461,000 subscriptions and 764,000 physical desks, which translates into an occupancy rate of 60%. This is down from 85% in mid-2019, but up from 45% at the end of last year.
WeWork could benefit if companies that cut down on traditional leases decide they need flexible spaces when they want to meet employees all in one place.
And WeWork’s management says the companies it talks with want 20% of their total space to be flexible, providing solid demand in theory.
WeWork estimates that revenue will more than double by 2024 and subscriptions will increase by more than 50%.
If all this happens, Newman, who left WeWork under a cloud during its 2019 IPO attempt, will stand to profit. His stock in the company is worth about $690 million at Thursday’s closing price. He also has a type option on WeWork shares, which are valued at more than $230 million at the stock price. Combining those amounts with the more than $800 million he received for exiting the company and relinquishing control, Newman could one day recover more than $1 billion from WeWork.
“Adam is just another shareholder, Claire told CNBC.
This article originally appeared in the new York Times.