WeWork delays IPO amid skepticism

WeWork’s parent company put its stock market debut on the back burner Tuesday, struggling to drum up investor enthusiasm for a fastgrowing enterprise that spread trendy communal office spaces across the globe while piling up massive losses and drawing concerns about its CEO’s corporate governance practices.

The We Co. dropped plans to begin its road show this week to market its shares for an initial public offering that had been widely expected this month. The company said it still expects to issue its IPO by the end of the year, but it was unclear what steps it might take in the months ahead to dispel concerns that led to the delay.

“The We Co. is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” the company said. “We want to thank all of our employees, members and partners for their ongoing commitment.”

Already, the We Co. had announced sweeping corporate governance changes intended to address conflict of interest and commitment concerns surrounding CEO Adam Neumann. And it had been considering pricing shares at a valuation of less than half the estimated $47 billion that private investors have assigned to it.

The delay was striking in a year marked by healthy investor appetite for IPOs. WeWork had filed confidentially for an IPO in December, and gave investors a detailed look at its finances in a public regulatory filing last month. Last week, it announced plans to list its shares on the Nasdaq.

“It’s a big deal,” said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchangetraded funds. “If the market for IPOs were really bad, then maybe it wouldn’t be, but the IPO market is in fairly good health.”

However, Smith said, investors in public markets have become more cautious about big companies that are growing quickly but also bleeding losses. Ridehailing companies Uber and Lyft came to the market earlier this year with large losses, and both are still trading well below their IPO prices.

Only a couple of weeks ago, Smith was forecasting that this year could be the biggest for IPO proceeds since 2014. WeWork’s delay may curtail the total, but Smith said demand is still healthy for IPOs of companies that are profitable.

Skepticism about the sustainability of WeWork’s business model has deepened since it released its finances. Revenue has more than doubled annually over the past few years to $1.8 billion in 2018. But its losses have mounted almost as quickly, reaching $1.6 billion last year.

WeWork makes money by leasing buildings and dividing them into office spaces to sublet to members, who use an app to book readymade offices or desks and get access to frontdesk service, trendy lounges, conference rooms, free coffee and other services.

Founded as a coworking space in Manhattan in 2010, WeWork now has 527,000 members in 111 cities around the world, nearly double the number of members it had last year.

With location operating expenses — mostly rent — amounting to about 80% of revenue, WeWork has been heavily reliant on cash infusions from its private investors, particularly the Japanese conglomerate SoftBank, which valued the company at a $47 billion in a January round of funding.

At stake for WeWork is a deal that would give it access to $6 billion in financing raised by a group of banks, as long as it raises at least $3 billion in the IPO.

“They need this IPO, otherwise they need to go back to the Softbanks of the world and say we need another infusion or open up another line of credit,” said Dan Morgan, senior portfolio manager for Synovus Trust.

Also looming over WeWork are concerns about Neumann, who used some of his WeWork stock to secure a $500 million personal loan, and sold some of his shares. He has raised conflict of interest concerns because he owns four buildings that WeWork leases. And a backlash prompted Neumann to return $6 million that We Co. paid for the trademark “We.”

Smith said WeWork likely will need to take at least a couple of months to rework its pitch and show a clearer path to profitability. That’s what will matter most to investors, more than the changes to address other concerns about corporate governance.

“We hold our noses with many companies if they show us they can perform and they’re doing a good job,” Smith said.