WeWork: profile of a company in crisis | FT

It was supposed to be one of
the largest IPOs of the year. But the shared
office group WeWork was instead plunged into
crisis after investors failed to buy into
its valuation of $47bn or its promises of elevating
the world’s consciousness. The IPO was called off, and
the chief executive resigned. But what exactly is WeWork? Put simply, it rents
out office space, decorates it in a
distinctive style, and rents it out on
all-inclusive deals to businesses ranging from
start-ups to Facebook and HSBC. It’s grown at a breakneck pace. In recent years, it’s become
the largest private tenant in Manhattan and central London. The former chief
executive, Adam Neumann, previously told the
FT it was about much more than office space. A lot of times,
people ask me if we compete against co-working
spaces or against Regus and the answer is no. We’re competing against office. We’re changing the
way people work. One of the ways that really
differentiates us is community. But WeWork’s quick
expansion came at a price. As the company grew,
bankrolled by its biggest investor, SoftBank, its
losses have ballooned. Last year it reported a loss
of $1.6bn on sales of $1.8bn. They combined three things that
when put together are very, very dangerous or difficult.
When you have losses… like, very big losses… when you have opacity…
like, you’re very, very difficult to analyse,
because you haven’t provided details… and arrogance. So when companies are
difficult to analyse, then the trust of the management
team becomes more important. And when investors, you know,
looked hard at this team to see if there was a team
here that they could trust, I think that’s
when things started to unravel for this process. Another problem for investors
was the way WeWork is run. This is the business
structure they submitted when they were hoping to list. It’s a structure known as
a UPC, which offers tax benefits to early investors. It also creates
different share classes. The former chief
executive, Neumann, would have had 20 times
as many votes per share as ordinary shareholders. Investors were worried about
his levels of control and other deals, like his decision to
charge the company almost $6m to use the word “we.” After an outcry, that
decision was reversed. Now Mr Neumann is out. The new co-chief executives
have signalled a slimming down of the company, and they are
selling off its private jet, which Neumann used
to travel the globe and which the company bought
just last year for $60m. But some landlords still think
WeWork has huge potential. Mike Hussey of
London-based Almacantar owns one of WeWork’s
largest sites. He says businesses are
flocking to WeWork spaces. What WeWork have
done is said: “We think modern companies want
something completely different. They want a fully serviced
operation, the ability to locate alongside
like-minded people. And we are prepared to wrap the
whole thing together, provide you with space that really
works for your staff, provide you with the
flexibility to do what you want to do in your space, and
provide you with all the support mechanisms that you need in
order to occupy that space.” And that is where the
market – and they’ve stolen the march on
the market – that is where the market
has really changed. The new co-chief
executives will now have to make that
case to investors and WeWork’s worried staff. The company plans to
drastically slow its expansion to avoid running out of cash. But it faces an uphill battle
to show that WeWork really is at the vanguard of a real
estate revolution and not just another
bloated unicorn that couldn’t stand up to scrutiny.

16 thoughts on “WeWork: profile of a company in crisis | FT

  1. SoftBank really knows how to pick them: Uber, WeWork, GetYourGuide…at least they all got great leadership and the price for the investment was fair. Oh, wait.. 😀

  2. SoftBank looked like a rich boys play thing when it started out as well. BS investors investing in loss making undercutting businesses.

  3. How does the "Smart" Money fall for this crap… only thing that makes them "Smart" is they know how to sell it to the public for a profit.

    Thank god this madness is being addressed. It's toxic for real capitalism

  4. Bullshite! They want to challenge the idea of an office? Work from home for gods sake! The technology and infrastructure allows for this in the U.K..

  5. Stop calling it a tech company. Is a real state company. Facebook, Microsoft, etc are tech companies. Walmart has online shopping. Does that make them a tech company? Lol

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