WeDon’tWork: The real estate company WeWork looks to launch an IPO

September 19, 2019

2 min read

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What's going on here?

WeWork, the office-sharing company which leases office space globally to professionals, small businesses and even Fortune 500 companies, is falling apart as it prepares for its Initial Public Offering (IPO) on the Nasdaq stock market in New York.

What does this mean?

WeWork was valued at $47bn and tipped to be worth $65bn in its original valuation in January. This is now anticipated to fall to around $15bn-$20bn if the IPO even goes ahead. As investors and analysts question whether WeWork should go public, its co-founder Adam Neumann is pushing hard for the company to be listed, moving ahead with meetings with investors across the US, known as a “roadshow”. This is because the company needs to raise $3bn on its flotation to gain a $6bn debt package from a group of banks.

On top of this, the company is haemorrhaging losses. Expected losses in 3 years are around the $3bn mark and the company has never made a profit in its 9 years of existence.

Additionally, the corporate structure of the company is having to change rapidly in order to save the IPO. Adam Neumann has reduced his voting power, his family have been barred from the board, and the company is appointing an independent director. We Company (WeWork’s parent) has claimed that these measures are “in response to market feedback”.

What's the big picture effect?

The WeWork fall in valuation coincides with the disappointing listings of Uber and Lyft. This has renewed concerns in the so-called “Unicorns” (businesses funded by venture capital firms that are valued at $1bn or more). Investors are becoming more cautious in backing companies with large potential if they do not have a track record of success, and this is a concern for other start-ups that are hoping to go public soon.

The potential for a disappointing IPO is not a good time for Goldman Sachs and Morgan Stanley. The two are increasingly under threat from challengers such as Credit Suisse, Bank of America, Citigroup and Barclays. The threat is particularly serious when it comes to tech IPOs. The disappointing IPOs of Uber and Lyft, and now with WeWork looking to do equally bad, mean that “Unicorns” and other start-ups may look to new horizons instead of the traditional playing field. This will disrupt the market in which Goldman Sachs and Morgan Stanley have dominated for so long.

Therefore, this IPO not only highlights the risks associated with these unproven “Unicorn” companies, but it also shows that the traditional world of banking could face a major change if they do not adapt their practices.

Report written by Sam Clare

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