WeWork Might Cut Valuation to $20B as IPO Pressure Mounts
WeWork’s massive $47 billion valuation might not be long for this world, as the coworking giant is reportedly considering cutting it by more than half amidst its initial public offering (IPO).
The start-up’s parent company, The We Company, has been in talks about setting its IPO to value WeWork at close to $20 billion, a major decrease from WeWork’s worth after it closed on a $16 billion fundraising round led by SoftBank Group in January, the Wall Street Journal reported.
One analyst said the cut in its valuation would actually be a good thing for WeWork because it prices the company more logically and puts it on more stable ground for the future.
“I think roughly zero people, who stopped and thought about it, thought that $47 billion was the right valuation for WeWork,” Alexander Snyder, a senior analyst at CenterSquare Investment Management, told Commercial Observer. “They stand to benefit more long-term from setting a more realistic price today, and having the IPO and being able to go back to the equity market and raise capital. It’s a better way to have long-standing success.”
While its valuation is still far north of some of its other coworking rivals, investors can at least start making the argument for a $20 billion valuation, Snyder added.
The valuation decrease reportedly came from talks Adam Neumann, the co-founder and CEO of the We Company, recently had with SoftBank head Masayoshi Son and his team in Tokyo, according to the WSJ. Neumann and Son also talked about a potential infusion of cash from SoftBank that could push back the IPO until next year.
The 9-year-old company’s IPO filing in August listed $1 billion as the targeted amount to raise, but reports said the figure is likely between $3 to $4 billion. It was planning its debut for September, but has since faced concerns from potential investors over the amount of cash it burns each year, the WSJ reported.
WeWork’s revenues grew at a staggering rate from $436 million in 2016 to $1.82 billion in 2018, as Commercial Observer reported. However, in that time, its net losses increased from $430 million to $1.6 billion, with little signs of slowing down.
In the first six months of this year, WeWork pulled in $1.5 billion in revenue but posted a net loss of $690 million, an increase of the $628 million of net losses on $764 million in revenue during the same time last year.
This money-losing model led analyst Sam McBride, of New Constructs investment research firm, to dub WeWork “the most ridiculous IPO of 2019.”
“At a time of really strong economic growth, this is when their business model should be working,” McBride told MSNBC. “If real estate prices go down, if they hit a recession, they’re going to be in big trouble with their lease commitments.”
Snyder said McBride’s criticism wasn’t exactly fair because the company hasn’t stabilized yet, but agreed an economic downturn could spell trouble for WeWork.
But Neumann didn’t seem to be too concerned with the naysayers. Speaking at a private education session for analysts yesterday, Neumann said the fact that Wells Fargo has invested in the business should ease their fears.
“If Wells Fargo, the largest lender in this country, can get comfortable with this, then everybody should,” Neumann said during the meeting, according to Bloomberg.