Can WeWork Survive The Coronavirus Pandemic?
The startup’s survival skills are put to test now.
What Happened?
Last week, a news report from The Telegraph said that WeWork co-founder and ousted CEO Adam Neumann unloaded $361 million worth of shares in the company when Japanese technology company SoftBank first invested in the firm in 2017. Along with Neumann, WeWork’s first major investor, Benchmark, apparently sold $315.5 million in shares during the 2017 deal and a later SoftBank investment in 2019.
Also, this Monday, SoftBank estimated a $7 billion net loss for the year ended March because of the negative impact of coronavirus and losses related to WeWork.
If you haven’t been keeping up with the WeWork debacle, let us give you a quick recap.
The Rise Of WeWork
WeWork is an American commercial real estate company that offers shared workspaces for technology startups and services for other enterprises.
Adam Neumann, Miguel McKelvey started WeWork with its first location in New York’s Soho district in 2010. The company grew to 12,500 employees and claimed to manage 16 million square feet of office space with 500,000 members around the world. The firm received $13 billion in funding from investors. SoftBank was one of its biggest investors and it owned 30% of WeWork.
The Revelations & Consequences
But things took a turn for the worse after the company filed its S-1 paperwork with the Securities and Exchange Commission (SEC) in August 2019. The paperwork brought the company’s hundreds of millions of dollars of debt to the spotlight. This debt made the investors doubt the company’s $47 billion valuation and whether the business model was working. It also brought up questions about Adam Neumann.
Neumann reportedly cashed out $700 million worth of shares through sales and loans before the IPO and this was not a very good sign for the company. Usually, CEOs wait until after the IPO to sell their shares because the stock price generally goes up after that.
Six weeks after filing the IPO documents, Neumann had voted to remove himself from the CEO job and gave up his majority control of WeWork’s stock. The company’s proposed valuation fell by over half and the IPO was called off. After the IPO failed, the company was subsequently taken over by SoftBank.
Last month, SoftBank backed out from a $3 billion deal to buy out shareholders and later, WeWork sued the firm and accused it of putting its own interests ahead of those of WeWork’s minority stockholders. These events indicate that the company’s problems are continuing to become worse.
Why Does This Matter Now?
Out of the many companies SoftBank placed their bets on, we could now say that WeWork wasn’t a very good bet. Even after Neumann’s departure in 2019, we could still see the consequences of his acts rippling through the company. But the coronavirus pandemic is now testing how much more the company can take?
With more and more people working from home, one question comes to all of our minds — What is the need for a coworking space when nobody wants to cowork? If the “work from home” scenario continues for a while, tenants could choose not to renew short-term leases, putting WeWork in a tight spot for billions in long-term lease liabilities.
Until now, WeWork hasn’t closed all of its locations unlike some of its competitors. It continues to keep the locations open and is charging people for the space. Adam Mutschler, an executive coach told Bloomberg, that he signed a two-year lease last fall to save about 10% on his office space but that once the crisis is over, he wants to find a way to end his contract early.
In conclusion, WeWork’s state wasn’t all that rosy even before the pandemic and it has made a lot of people question whether the company will survive this pandemic in its already-damaged state. We all know that this outbreak will leave its mark in a lot of companies but we have to wait and see how deep of a scar it leaves on WeWork and whether SoftBank will rescue the firm.
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