WeWork Raises Doubt About Its Survival
The co-working company issued a going-concern warning because its co-working clients are canceling their memberships at a faster clip than it expected WeWork outlined steps to improve liquidity and profitability. Photo: Joseph Nair/Zuma Press By Alexander Saeedy and Ben Glickman Updated Aug. 8, 2023 7:54 pm ET | WSJ Pro WeWork on Tuesday raised doubt about its ability to stay in business as the co-working space provider faces losses and a dwindling cash pile amid major changes in the way people work. WeWork, once one of the world’s most valuable startups worth $47 billion, said Tuesday excess supply of commercial real estate, greater competition for flexible space and uncertain economic conditio
WeWork outlined steps to improve liquidity and profitability.
Photo: Joseph Nair/Zuma Press
WeWork on Tuesday raised doubt about its ability to stay in business as the co-working space provider faces losses and a dwindling cash pile amid major changes in the way people work.
WeWork, once one of the world’s most valuable startups worth $47 billion, said Tuesday excess supply of commercial real estate, greater competition for flexible space and uncertain economic conditions resulted in losses in the second quarter. The company has seen higher churn and lower demand than it anticipated, with memberships at its locations falling from a year ago, Interim Chief Executive Officer David Tolley said in its quarterly results.
WeWork’s management also warned that “as a result of our losses…which have been impacted by the recent increases in member churn…substantial doubt exists about the company’s ability to continue as a going concern.”
WeWork raised billions of dollars from firms like SoftBank, its largest financial backer, but its growth stalled after investors raised concerns over its charismatic co-founder Adam Neumann’s unorthodox management style and his related-party transactions with the company. He was ousted in 2019 and under new management WeWork went public in 2021 through a merger with a special-purpose acquisition company.
However, the company’s stock is down more than 95% since its public listing, with an estimated market capitalization of around $450 million as of Tuesday, and based on its share price SoftBank has lost billions of dollars on its investment in the company.
WeWork said Tuesday that its ability to continue in existence as a business depends “upon successful execution of management’s intended plan over the next twelve months.”
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Recession fears and tech-industry job cuts have weighed on demand for co-working desks, part of broader turmoil affecting the commercial real-estate market because of employees’ reluctance to return to the office.
Facing these headwinds, WeWork attempted earlier this year to try to strengthen the company’s finances in order to weather the downturn. In March, it agreed to a debt restructuring deal with SoftBank as well as some of its major Wall Street creditors, including King Street Capital Management and Brigade Capital Management.
SoftBank agreed to swap approximately $1.6 billion of its debts for a mix of new debt and equity in WeWork, and the transaction reduced the company’s debt by more than $1.5 billion.
As part of that deal, WeWork also landed an investment from longtime SoftBank financier Rajeev Misra’s new investment fund, One Investment Management, who agreed to provide nearly $500 million of high-interest debt to the office space provider.
“The new financing raised and committed in the transaction is expected to fully fund WeWork’s business plan and provide ample liquidity headroom,” the company said in a presentation in March.
However, some five months later, the company on Tuesday added the warning about its future to its quarterly earnings, raising doubts about the success of its planned turnaround. Shares tumbled as much as 29% in after-hours trading on Tuesday.
The New York-based company said it posted a loss of $349 million, or 21 cents a share, in the second quarter of 2023, compared with a loss of $577 million, or 76 cents a share, a year earlier. Analysts polled by FactSet expected per-share losses of 13 cents a share.
Revenue rose 4% from a year earlier to $844 million, below the $850 million expected by analysts polled by FactSet.
WeWork on Tuesday also outlined steps to improve liquidity and profitability, including cutting costs by restructuring and renegotiating lease terms, increasing revenue by reducing member churn and adding new sales. The company said it would seek additional capital through the issuance of debt or additional shares, or by selling assets.
Write to Alexander Saeedy at [email protected] and Ben Glickman at [email protected]
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