WeWork's new leaders shelved plans to enter the stock market Monday as they sought to repair the battered image of a company that appeared to revolutionize the office-rental industry and was poised just weeks ago to go public with a valuation of nearly $50 billion.
The decision came less than a week after co-founder Adam Neumman stepped aside as chief executive officer. His corporate governance practices had raised conflict-of-interest questions that compounded skepticism about the money-losing company's prospects for turning a profit.
The suspended IPO raised an immediate funding challenge for WeWork, which had counted on a successful stock offering to pursue the meteoric growth strategy that made it so attractive to private investors in the first place. The company, which began as a co-working space in Manhattan in 2010, had planned to expand in many of the 111 cities where it now operates and launch in up to 169 additional cities across the world.
U.S. & World
Analysts have said WeWork's outlook could improve if it raised cash and slowed its growth to conserve capital, even though that would lower its long-term value. Its revenue has more than doubled each year since 2016, mostly through its acquisition of new property leases.
"It's a dangerous line they have to walk. You have to keep up the revenue growth, and for that you have to keep adding properties. And to keep adding properties you have to keep getting investment or issue stocks or bonds," said Dan Morgan, senior portfolio manager for Synovus Trust.
Without revenue growth, "you lose the whole magnet of why anyone would be interested in the stock, because you aren't profitable," he added.
WeWork's new co-CEOs, Artie Minson and Sebastian Gunningham, said the company was suspending its IPO to "focus on our core business, the fundamentals of which remain strong."
The company gave no further details, but its core business involves leasing buildings and dividing them into office space that it rents out to members, many of them startups, freelancers and small business owners who cannot afford permanent office space.
The We Company also has an eclectic portfolio of side businesses meant to cater to the well-being of its members — a community-building vision set forth by Neumann, a magnetic Israeli immigrant who partly grew up on a kibbutz, and his wife Rebekah Neumann, a certified yoga instructor who studied both business and Buddhism at Cornell University.
Those ventures include a fitness company called "Rise by We," a school for children called "WeGrow," and a co-living rental company "WeLive." An acquisition spree included the social media network Meetup.
Larger corporations are also a growing part of the company's customer base because it offers a cost-efficient way to expand to new markets or recruit workers from a wider selection of cities without having to build new offices.
But WeWork's grandiose vision failed to resonate on Wall Street after the company revealed massive losses in its IPO filings. Initially valued at $47 billion, WeWork was considering an IPO priced at well below $20 billion before pulling out.
For now, WeWork has cash. It was sitting on $2.5 billion at the end of June.
But it continues to burn more cash running its day-to-day business than it brings in. During the first six months of the year, WeWork went through $198.7 billion to fund its operations, meaning it spent more on rent, taxes, maintenance and other operating expenses than it brought in. That figure does not include the cash that it spent on buying equipment, paying security deposits for new locations or other financing or investing activities.
Some cash is coming in the next year, with $1.5 billion arriving from its biggest investor, the Japanese firm SoftBank, in April as part of a deal struck at the start of this year. But even with that infusion, uncertainty remains about whether WeWork can raise enough cash to support its aggressive growth. Last week, S&P Global Ratings cut WeWork's credit rating to "junk" status.
WeWork is burning through a total of about $2.8 billion each year, according to estimates by Sanford C. Bernstein analysts. If it continues at that estimated pace, it may not have enough cash to make it to June.
Bernstein estimates that WeWork needs at least $6 billion in funding and possibly up to $8 billion if a recession were to hit in the next three years.
That's what makes WeWork's withdrawn IPO so damaging. If it had raised at least $3 billion from the offering, it would have gotten access to $6 billion in financing that was contingent on the deal.