SoftBank boosts WeWork valuation to $45 billion
If completed, deal would make firm the second-most valuable U.S. startup behind Uber
Japanese conglomerate SoftBank Group Corp. has committed $3 billion (U.S.) to WeWork Cos. in a deal that values the company at about $45 billion, the New York-based sharedoffice company said Tuesday, a major infusion of new funding by WeWork’s largest investor.
If completed, it would make WeWork, which was last valued in a 2017 fundraising round at $20 billion, the second-most valuable U.S. startup behind Uber Technologies Inc., and ahead of Airbnb Inc., according to Dow Jones VentureSource. While details were sparse—WeWork said SoftBank’s commitment was in the form of a warrant in which SoftBank would buy the additional stake in the first half of 2019—it is one of the largest financing rounds of a startup in recent years.
The deal comes after The Wall Street Journal reported discussions about a far larger investment that called for SoftBank to spend $15 billion to $20 billion to buy a majority of the eightyear-old company. It is unclear exactly how the latest cash infusion relates to the larger deal, which continues to be under discussion, according to people familiar with the matter.
SoftBank last year committed to invest $4.4 billion in the company through its $92 billion Vision Fund, backed largely by Saudi Arabia, giving it a nearly 20% stake.
That marked the second-largest fundraising round by a U.S. venture capital-backed private company, behind a $5.6 billion investment round in Uber, according to PitchBook. This latest SoftBank-WeWork deal would be the third-largest.
The desire to take on additional money reflects the “confidence and conviction we have in the size of the market opportunity,” said Michael Gross, WeWork’s vice chairman. The money was committed by SoftBank from its balance sheet, not the Vision Fund, said WeWork finance chief Artie Minson.
The conglomerate previously transferred a stake in WeWork from its balance sheet to the Vision Fund, which is backed with $45 billion from Saudi Arabia, and could transfer more in the future, people familiar with the matter have said. A SoftBank spokesman declined to comment .
Asked about recent calls for companies to reject Saudi money, Mr. Minson said the question was “irrelevant,” because the company struck its deal with SoftBank at the corporate level.
The deal also shows WeWork’s unending thirst for capital, as the company has plowed billions into a rapid expansion.
While many startups pull back the pace of fundraising as they age and strive for profits, WeWork’s core business model— renovating office space that it subleases short-term to startups and divisions of large companies—is a cash-heavy exercise. Since the company was founded in 2010, it has taken in more than $6.5 billion in cash from investors and banks. Spending has been far faster: It had $2.8 billion in cash as of last month.
WeWork also said Tuesday that its revenue in the first nine months of the year grew to $1.2 billion, double the $603 million in the same period a year earlier. As of September, its annualized revenue has reached $2 billion and its occupancy was 84%.
With its number of rented desks more than doubling over a year earlier to 297,000, the results highlight how the company has seen demand rise as it has rapidly boosted supply in the shared office space market.
Still, the expansion comes at a cost, and losses are piling up even faster than revenue—a disconnect that has stirred concerns among onlookers.
The company’s adjusted earnings, which exclude costs such as depreciation, interest payments and adjustments for rent incentives, showed a loss of $415 million in the first nine months of the year, nearly quadruple the $108 million loss it posted a year earlier.
The company, which released select financial measures, didn’t disclose its net loss, as it did after the second quarter. A WeWork spokesman declined to comment on the change. WeWork said in its announcement that the increased losses were expected, and they come as the company is planning to open a record 100,000 new desks in the fourth quarter. It called the extra spending “a function of our view on profitable growth.”
One of the biggest areas of increased spending was in sales and marketing, which reached $244 million in the first nine months, nearly triple the $84 million a year earlier.
That figure itself was triple the amount from the same period in 2016.
WeWork said that is in part because it is signing longer contracts with tenants, which comes at higher upfront sales costs. The company has also offered lucrative discounts to some new tenants. The company also showed strength in its effort to lease more desks to large businesses, a key area of focus.
In total, 29% of the company’s desks are leased to large businesses, up from 20% a year earlier.