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WeWork Parent Considers Reducing Valuation Before I.P.O. WeWork Parent Considers Reducing Valuation Before I.P.O.
(32 minutes later)
The parent company of WeWork, the fast-growing operator of shared working spaces, is considering selling stock in an initial public offering at a significant discount to its valuation from earlier this year, according to three people familiar with the situation. The parent company of WeWork, the fast-growing operator of shared working spaces, is considering selling stock in an initial public offering at a significant discount to its valuation from earlier this year, according to three people familiar with the matter.
The We Company is in talks to value itself at $20 billion to $30 billion, said the people, who spoke on the condition of anonymity because of the sensitivity of the topic. The figure is well below the $47 billion valuation at which the company raised money as recently as January. The valuation could end up being closer to $20 billion, two of the people said.The We Company is in talks to value itself at $20 billion to $30 billion, said the people, who spoke on the condition of anonymity because of the sensitivity of the topic. The figure is well below the $47 billion valuation at which the company raised money as recently as January. The valuation could end up being closer to $20 billion, two of the people said.
A sharply lower valuation would be a major blow for one of the most prominent companies to seek to sell shares in a public offering in recent years.A sharply lower valuation would be a major blow for one of the most prominent companies to seek to sell shares in a public offering in recent years.
“I can’t think of another I.P.O. where they halved the valuation,” said Reena Aggarwal, a finance and business professor at Georgetown University. “This certainly shakes up confidence and makes people pause.”“I can’t think of another I.P.O. where they halved the valuation,” said Reena Aggarwal, a finance and business professor at Georgetown University. “This certainly shakes up confidence and makes people pause.”
Behind the scenes, the company has been trying to find ways to make its planned I.P.O. a success — something that now appears in some doubt. Behind the scenes, the company has been trying to find ways to make its planned offering a success, something that now appears in some doubt.
The We Company’s chief executive, Adam Neumann, met in Tokyo last week with executives at the Japanese technology giant SoftBank, one of his biggest investors, two of the people familiar with the matter said. They discussed how SoftBank could help by investing more money beyond the $10.5 billion it has already poured into the business. The We Company’s chief executive, Adam Neumann, met in Tokyo last week with executives at the Japanese technology giant SoftBank, one of the company’s biggest investors, two of the people familiar with the matter said. They discussed how SoftBank could help by making an investment beyond the $10.5 billion it has already poured into the business.
Under one proposal, SoftBank would buy a big block of shares in the public offering, worth $3 billion to $4 billion. Under an alternative, SoftBank would invest another big sum directly into the company, allowing it to delay the I.P.O. Under one proposal, SoftBank would buy a block of shares worth $3 billion to $4 billion in the public offering. Under another, SoftBank would invest another large sum directly into the company, allowing it to delay the public offering.
The people familiar with the discussions said that conversations were continuing and that nothing had been decided. The people familiar with the matter said that the discussions were continuing and that nothing had been decided.
Representatives for the We Company and SoftBank declined to comment on the record.Representatives for the We Company and SoftBank declined to comment on the record.
The We Company’s reconsideration of how to value itself is the latest sign that investors are becoming wary of fast-growing companies that continue to lose money. The share prices of the ride-hailing companies Uber and Lyft, which fit that description, have slumped since their highly anticipated public offerings this year.The We Company’s reconsideration of how to value itself is the latest sign that investors are becoming wary of fast-growing companies that continue to lose money. The share prices of the ride-hailing companies Uber and Lyft, which fit that description, have slumped since their highly anticipated public offerings this year.
Last year, WeWork had an operating loss of $1.7 billion on $1.8 billion of revenue, partly because of the steep costs associated with outfitting the spaces it operates.Last year, WeWork had an operating loss of $1.7 billion on $1.8 billion of revenue, partly because of the steep costs associated with outfitting the spaces it operates.
“Historically, WeWork and its investors agreed to focus on growth at the expense of profitability,” said Rett Wallace, chief executive of Triton Research, a firm that analyzes technology public offerings. “But what seems to be happening is that you now have an audience that is much more focused on profitability than the previous investors had been.” “Historically, WeWork and its investors agreed to focus on growth at the expense of profitability,” said Rett Wallace, the chief executive of Triton Research, a firm that analyzes public offerings in the technology industry. “But what seems to be happening is that you now have an audience that is much more focused on profitability than the previous investors had been.”
The prospective reduction in valuation was first reported by Bloomberg News. The potential reduction in valuation was first reported by Bloomberg News.
WeWork’s business model includes a substantial financial risk that could hurt it in a downturn. The company leases space from landlords for 15 years on average, then typically rents it out under contracts that run for less than two years on average. If WeWork were to lose customers, it would still have to make payments on the longer leases. At the end of June, WeWork’s lease obligations totaled $18 billion, according to a regulatory filing for its public offering.WeWork’s business model includes a substantial financial risk that could hurt it in a downturn. The company leases space from landlords for 15 years on average, then typically rents it out under contracts that run for less than two years on average. If WeWork were to lose customers, it would still have to make payments on the longer leases. At the end of June, WeWork’s lease obligations totaled $18 billion, according to a regulatory filing for its public offering.
WeWork’s corporate governance has also faced criticism, in part because Mr. Neumann, the chief executive, has voting control. He invested in properties that leased space to WeWork, creating a potential conflict of interest. Mr. Neumann later sold his stakes in the properties to an investment arm of WeWork. WeWork’s corporate governance has also faced criticism, in part because Mr. Neumann, the chief executive, has voting control. He has also invested in properties that leased space to WeWork, creating a potential conflict of interest. Mr. Neumann later sold his stakes in the properties to an investment arm of WeWork.
In another reversal, WeWork this week said Mr. Neumann had given back $5.9 million he had received from the company for the trademarks for the word “we.” In addition, Mr. Neumann’s wife, Rebekah Neumann, would have considerable influence over the choice of a new chief should he die or become permanently disabled. In a move that underscored Mr. Neumann’s outsize role, WeWork said this week that he had given back $5.9 million he had received from the company for the trademarks for the word “we.” In addition, Mr. Neumann’s wife, Rebekah Neumann, would have considerable influence over the choice of a new chief should he die or become permanently disabled.
“It’s not We Company, it’s the I company,” said Ken Bertsch, executive director of the Council of Institutional Investors, which represents pension funds, endowments and other investors. “It’s not We Company, it’s the I company,” said Ken Bertsch, the executive director of the Council of Institutional Investors, which represents pension funds, endowments and other investors.
The troubles at the We Company could be a headache for SoftBank, which has invested in the company from its own coffers and through its nearly $100 billion Vision Fund. The Japanese company has already seen the value of its stake in Uber fall because of that company’s flagging stock price. The We Company’s troubles could cause new headaches for SoftBank, which has invested in the company from its own coffers and through its nearly $100 billion Vision Fund. The value of SoftBank’s stake in Uber has fallen because of the ride-hailing company’s flagging stock price.
SoftBank is in the middle of raising a second Vision Fund. SoftBank is in the middle of raising money for a second Vision Fund.
Opinion on WeWork within SoftBank appears to be split. Some SoftBank executives have previously argued in internal discussions that the Japanese company should not invest more money into the company, according to two people familiar with those deliberations. Within SoftBank, opinions about WeWork appear to be split. Some executives have argued previously in internal discussions that SoftBank should not invest more money in the company, according to two people familiar with those deliberations.