In the wake of a halved company valuation and a postponed initial public offering (IPO), WeWork is grappling with another internal crisis. Sources familiar with the matter have revealed that the parent company, We Company, is set to hold a board meeting on Monday morning to discuss the possibility of removing Adam Neumann from his position as CEO.
We Company’s largest investor, SoftBank Group, has already expressed support for replacing Neumann and may propose that he remain with the company as a non-executive chairman. This move is likely to bring WeWork back into the spotlight, with board members from SoftBank, Benchmark, and Hony Capital among others, considering the implications of such a decision.
Figure: WeWork founder and CEO Adam Neumann speaking at the USCM winter 18 roundtable (Source: WeWork)
According to media reports, the board’s move to oust Neumann is aimed at keeping him within the company while bringing in a new leadership team to advance the IPO. This would provide We Company with the cash needed to sustain its rapid growth. CNBC, citing sources, suggests that SoftBank Chairman Masayoshi Son’s push to remove Neumann is an attempt to halt the company’s IPO. If WeWork does not go public, SoftBank could avoid a significant write-down on its investment, which was valued at $47 billion earlier this year. The company’s expected valuation has now plummeted to about one-third of that amount, around $10 billion.
In 2018, WeWork’s operating losses neared $2 billion, and analysts predict that, based on current trends, We Company will exhaust its existing cash reserves at some point next year. Despite the company’s growth, its losses have continued to mount. WeWork’s financial performance section in its prospectus shows that from 2016 to 2018, the company’s revenue grew from $436 million to $1.82 billion. However, its losses also expanded each year, reaching $1.93 billion in 2018 and about $900 million in the first half of 2019.
As a significant investment of SoftBank’s Vision Fund, WeWork, like other portfolio companies such as Uber and Slack, is struggling to achieve substantial profitability. The stock performance of these companies post-IPO has made investors skeptical about We Company’s prospects. Recently, WeWork has decided to delay its IPO until the end of this year, with the specific timing remaining unclear.
Figure: WeWork office space (Source: Yahoo Finance)
According to the Nikkei Asian Review, We Company’s core business is not internet-based but rather a platform similar to long-term leasing, with competitors in China like Ucommune and Kr Space. The current internal turmoil at WeWork could serve as a cautionary tale for these competitors.
The IPO of SmileDirectClub on September 12 saw its shares trade 28% below the offering price. Fiverr International, an online freelance platform based in Israel, experienced a significant IPO but has since seen its stock price fall back to the offering price. Xiaomi’s stock has also been halved. These signs indicate that 2019 is not a favorable year for IPOs.
A report by Dow Jones VentureSource in July showed that China’s venture capital deal flow and investment have declined for four consecutive quarters, falling 70% from the bubble peak. As funding activities become more active, tech startups in both the US and China will need to consider profitability or risk losing support and funding from venture capitalists.
The ongoing internal strife at WeWork underscores the challenges faced by unicorns and tech startups in maintaining their growth trajectory while ensuring sustainable financial health. The outcome of the board meeting and Neumann’s potential departure could significantly impact WeWork’s future, particularly as it navigates the complex path to becoming a publicly traded company.
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