WeWork stock starts trading two years after its first IPO
Company’s stock reaches high of $11.10 Thursday
Two years after WeWork’s attempt to become a public company flamed out spectacularly, the coworking giant started trading on the stock market Thursday, hoping that investors will now believe in its prospects.
The earlier effort collided with concerns about WeWork’s breakneck growth, its huge losses and the alarming management style of its co-founder Adam Neumann. WeWork has new leaders who have pared back its expenses and hope to exploit an office space market that has been upended by the pandemic. But the company still has lofty growth targets, big losses and many empty desks in its 762 locations around the world. And WeWork made it through the last two years only because of huge financial support from SoftBank, the Japanese conglomerate that is WeWork’s largest shareholder.
“We got here on a different road than we anticipated, but we’re here,” Marcelo Claure, WeWork’s executive chairman and a senior SoftBank executive, said in an interview Thursday with CNBC.
Instead of an initial public offering, WeWork entered the public markets by merging with a specialpurpose acquisition company, or SPAC, something of a craze these days. It is expected to raise as much as $1.3 billion from the deal, a sum that includes stakes held by the investment firms BlackRock and Fidelity. At the stock price Thursday, WeWork is worth around $9 billion, a fraction of the $47 billion valuation placed on the company before investors soured on it in 2019. Shares in the acquiring SPAC, called BowX, were issued at $10. In early trading Thursday, shares in WeWork — with the ticker symbol WE — were trading as high as $11.10.
WeWork leases office space and charges membership fees to customers — including freelancers, startups and small and large businesses — to use it. Its business rests on the belief that people might prefer the flexibility of such an arrangement over a traditional office lease, which can last for years and have other burdensome conditions.
Though flexible office space was not new, WeWork said its business could not only revolutionize how people worked, but also change how people lived and thought. Neumann attracted billions of dollars in investments, with the biggest coming from SoftBank, which ended up bailing out WeWork when it withdrew the 2019 IPO and was in danger of bankruptcy.
Investors in WeWork must judge whether SoftBank will use any increase in the stock price to sell some of its 61% stake.
SoftBank may be eager to recoup the $16 billion it has sunk into WeWork, a sum that combines nearly $11 billion of equity investments, $5 billion of debt financing and payments to Neumann.
“I made a wrong decision,” Masayoshi Son, SoftBank’s chief executive, said last year. “I didn’t look at WeWork right.”
SoftBank has agreed to cap its voting power in the company below 50%. SoftBank and other investors have to wait several months before they can sell their shares.
The pandemic, which emptied office towers around the world, also crushed WeWork’s business.
Traditional landlords survived because tenants were legally obliged to keep paying their yearslong leases, most of which remain in effect. But WeWork’s customers were able to cancel their much shorter-term agreements as they expired. WeWork’s revenue in the second quarter of this year was $593 million, well below the $988 million in revenue it reported for the first quarter of 2020, its peak quarter.
And this partly explains why the company is using up cash rather than generating it. In the first half of this year, WeWork consumed $1.31 billion of cash running its operations and purchasing property and equipment, more than the $1.15 billion in the same period of 2020.
Still, WeWork has made strides in cutting its operating expenses — and hopes it will become profitable if its revenue grows. Some of the biggest savings have come from renegotiating leases with landlords or getting out of them.
Sandeep Mathrani, WeWork’s CEO, said this month that the company had exited more than 150 full leases and done 350 lease amendments so far this year.
“What we did through the pandemic was correct the cost structure, right size the company,” he said in an interview with CNBC on Thursday.