The WeWork IPO Is Moving Forward In Minefields

WeWork is raising more and more concerns with its future IPO

Photo by Austin Distel on Unsplash

Instigator of a real revolution in the world of shared offices since its creation in 2010 by Adam Neumann and Miguel Mckelvey, WeWork has been making a lot of noise in the financial world for several months now.

Emblematic of coworking, the company is under pressure from some of its investors to temporarily abandon its IPO project initially planned for this fall. According to the Wall Street Journal, the WeWork IPO could thus be postponed to 2020.

While WeWork was expecting an IPO of $47 billion a few months ago under the latest round of financing with the Japanese Softbank group, we learned less than a week ago that WeWork was now expecting an enterprise value of around $20 billion.

Worse still, some sources even suggest that the two banks responsible for managing WeWork’s IPO, JPMorgan Chase and Goldman Sachs, are facing growing questions and doubts about WeWork.

A Mistrust Of Adam Neumann

At the forefront of the doubts raised by investors is a mistrust of Adam Neumann, the founding director of WeWork. Many did not like the fact that he personally invested in real estate and then rented in WeWork.

Adam Neumann owns several properties leased by WeWork and has even borrowed money from the company at very attractive interest rates.

The accounting documents disclosed by WeWork in the preparation of its IPO indicated a loan of $7 million granted in 2016 with an interest rate of only 0.64%.

In addition, he received more than $700 million in shares and debt of the company, which remains unusual before an IPO.

Finally, the documents made public by WeWork also revealed that Adam Neumann had received $5.9 million for the use of the word “We”. All this after WeWork renamed itself “The We Co”, which forced WeWork to pay money in rights to We Holdings, a company controlled by Adam Neumann.

This mode of governance leaves doubtful the investors initially interested in WeWork.

A Questioned Business Model

WeWork, which plans to be listed under the symbol WE, has not yet chosen the trading platform on which its IPO will take place. Its $1.9 billion in net losses last year is cause for concern, as is the $904 million deficit at the end of the first half of this year 2019.

WeWork’s business model is being questioned by investors who are beginning to believe that the company will not be able to generate enough profits in a context of sharply slowing global growth.

In addition, doubts remain about WeWork’s ability to honour the $40 billion in unsecured rents against unpaid rent that it has taken to deploy in more than 500 buildings.

All these problems appeared when WeWork published its IPO document in the middle of the summer. While the company thought it was reassuring the markets, the opposite was true.

The discovery of WeWork’s big and small secrets in this document ultimately raises more questions than anything else. In an attempt to save this IPO, JPMorgan Chase and Goldman Sachs will hold numerous meetings in the coming weeks to try to allay fears.

IPOs Of Uber, Lyft And Snap Remain In Memory

The doubts around WeWork are reinforced by the precedents of Uber, Lyft and Snap. This was a promise of the mountains and wonders of these companies, and it is clear that they are disappointing by posting a price on Wall Street below the level of their initial public offering.

Evolution of the Snap share price since its IPO

Under these conditions, it is easy to understand the doubts raised by WeWork for its IPO. These doubts are as much linked to the economic context as to WeWork itself and its CEO Adam Neumann.

The fact that WeWork is currently trying to diversify by investing in apartment rental or education does not change the perplexity of investors.

The coming weeks will therefore be crucial for WeWork and there is no guarantee that the company will be able to raise the $3 billion it wanted to recover through its IPO while at the same time obtaining a new $6 billion line of credit from major banks.

A case to be continued for what was to be one of the largest IPO of the year.