It’s been a yo-yo week for The We Company. Its main investor, Softbank Group, with a sinking stock price and concerns from Saudi and Abu Dhabi backers, drastically reduced a planned investment. And at at its global annual conference, the flexible-office company rebranded a day later.
Now the company, formerly known as WeWork, is weighing the prospect of an IPO, much sooner than expected, according to a report by the Financial Times. In order to do so, the flexible-office-space-and-more company will have to justify its new $47 billion valuation, which increased with SoftBank’s latest $2 billion commitment.
It won’t be an easy road. Economist predict a downturn in its core office-leasing business line, which has yet to turn a profit, and The We Company admitted to reduced leasing prices in all but two of its markets.
“If you look at the publicly traded office Reits, they are not trading very well . . . If you look at the share prices of Amazon and Netflix, it doesn’t seem like the best time [to float],” Daniel Ismail, an analyst at Green Street Advisers, told the FT.
Its executives spun the disappointing news of a reduced valuation from SoftBank as a positive.
“If someone said to us back in July, ‘The market is going to fall 4,000 points and you can raise $6 billion and be worth $47 billion post-money,’ I think everyone would have high-fived each other,” Artie Minson, WeWork’s chief financial officer, told the FT. “It is a signal of the strength of the company. We feel very good of where we’re at.”
For now the decision for stockholders remains whether to cash out now at a lower $20 billion valuation, or hold out for the possibility of a successful IPO, according to the report. In the first three quarters of 2018, The We Company’s losses quadrupled to $1.2 billion, compared to the same period the previous year, and collected $1.5 billion in revenue. SoftBank has committed $10 billion since 2017.
As part of the rebranding, the company was split into three main businesses, WeWork, its well-known flexible office company, WeLive, a residential business, and WeGrow, which includes an elementary school, gym and coding academy. Citing sources, the Financial Times reported that an IPO could be used to launch one of these arms individually.
SoftBank Group, the heavily indebted Japanese investment conglomerate led by Masayoshi Son, recently committed to a $2 billion investment in the company, which will reportedly allow The We Company employees to cash out at $54 a share.
The planned investment had been reduced after backers of SoftBank’s $100 billion Vision Fund, had expressed concern about taking a majority stake in The We Company, and SoftBank’s share price took a hit in December amid recent market turmoil.
Meanwhile, WeWork’s $702 million bond issuance in 2018 is trading at 86 cents on the dollar. [FT] — David Jeans