WeWork went public today (Oct. 21), two fraught years after a failed IPO revealed the office-leasing company wasn’t as profitable as its charismatic co-founder, Adam Neumann, had led investors to believe.
Shares of the company, which were sold to the public through a special-purpose acquisition merger (SPAC) with an acquiring firm called BowX, were up by more than 11% by the time the market closed.
It was a comeback moment that was hard to envision back in 2019, when WeWork saw its valuation tank and nearly 20% of its global staff of its global staff was laid off after its public filings revealed troubling details about the inner workings of the company. While WeWork was once valued by private investors at $47 billion, it’s worth an estimated $9 billion today.
The company’s valuation dropped, along with its high-flying co-founder
In 2010 Adam Neumann and his business partner, Miguel McKelvey, began leasing office space throughout New York City and renting it out to companies at a premium. The company grew substantially from there, and at one point operated in 111 cities across 29 countries. Co-working existed before WeWork did, but Neumann managed to convince investors at SoftBank that their company was worth more than anyone else in the game, and by the time the Japanese firm completed a $2 billion funding round in January 2019, it valued WeWork at $47 billion.
The company’s subsequent IPO filing revealed this valuation was much too high, as it became clear WeWork was hemorrhaging millions of dollars as Neumann profited from his position: He leased several of his own properties to the company, racked up credit card debt secured by WeWork stock, and sold the trademark to “We” to the company for $5.9 million when it rebranded (Neumann later gave back the money from that sale).
Neumann no longer holds a position at WeWork, although he maintains a roughly 11% stake in the company. Today, a seemingly more risk-averse CEO, Sandeep Mathrani, speaks for the company, along with executive chairman Marcelo Claure. In a CNBC interview the day of the IPO, Claure insisted that “Adam is just another shareholder.” (He is, however, hosting a party to celebrate the company’s public debut along with his co-founder).
WeWork’s valuation declined significantly after with Neumann’s fall, and making the firm a more attractive opportunity for investors, said Jay Ritter, a University of Florida professor specializing in IPOs.
“They’ve gone from a model a few years ago of saying, ‘let’s spend huge amounts of SoftBank money to grow,’ to now as a public company focusing on how their business model is going to be achieving profitability in the foreseeable future,” Ritter said. “Investors are more enthusiastic about the company now.”
Increased interest in co-working spaces could benefit the company
WeWork has never been profitable, but Mathrani has said the company is on track to get there by the end of this year. The company has cut costs significantly since Neumann’s downfall but still took a major hit during the covid-19 pandemic as workers stopped going into the office. During the first quarter of this year, WeWork’s revenue nearly halved from $1.1 billion to $595 million, and it lost more than 200,000 members between March 2020 and 2021.
But the company could benefit from a rebound in demand for co-working spaces as companies seek more flexible options for their employees.
“Their burn rate is likely to fall,” Ritter said, noting that as occupancy of WeWork spaces increases, they should be in a better position to cover operating costs.
“Office space now is shifting away from a commodity to a consumer product,” said Scott Homa, a senior director of office research with the real estate company JLL, which was brought on by WeWork earlier this year to help fill its vacant office spots. “WeWork is meeting the market in providing a consumer product that’s more aligned with the demands of the customer.”