On this day last year WeWork felt as if the stars had aligned. They were in IPO discussions and the business was valued by SoftBank at roughly $47bn. Even more excitingly, the Halloween party was this weekend, with appearances from Rick Ross and Busta Rhymes. WeWork was hailed as the first Chinese coworking unicorn, with Adam Neumann and the founding cohort living it up and even buying a private jet. So, with the recent spate of news and the business teetering on bankruptcy we ask ourselves, what happened?
Basically, Adam Neumann (happened). From the start of the business, it appears Neumann purchased buildings and then leased the space back to WeWork. Next, In the #metoo movement, Adam was accused of sexual harassment and plying an interviewee with tequila shots. He was also caught smoking weed on a private jet flight to Israel. What one might even call brave, he had the firm pay an entity he owned called WeWork Holdings $5.9m a year, just to use the WeWork name. He later returned this money, but the damage had been done, and the red flags surrounding the IPO were now too many to count. According to the Financial Times, the company lost $219,000 each hour of each day from March 2018 to March 2019.
These losses are staggering, even in a day where Uber (which has never seen profit) had an IPO valuation of >$80bn,WeWork has record setting bravado when it comes to inflated valuations. The Company had ~$50bn in future obligations and less that $5bn in commitments. Their SEC filing sums it up: “the company faces substantial risk in the event of an economic downturn: "...we have yet to experience a global economic downturn since founding our business”. If losing two billion is what happens in a good year, lets hope they don't see a bad one.
With their most recent valuation slashing the business value to only $10bn and only one office party listed globally in the Philippines this year, it should go without saying, this year’s Halloween might not have been as ostentatious as the last.