Quicktake on WeWork and it’s cash flow problems

WeWork has been making a lot of negative headlines lately:

  • “WeWork Bonds Fall to new Low” – Wall Street Journal, Oct. 16, 2019
  • “WeWork expected to layoff 2000 workers as early as this week” – CNBC, Oct. 15, 2019
  • “WeWork to formally withdraw IPO filing” – FT, Sept. 30, 2019
  • “WeWork CEO Adam Neuman steps down under pressure” – NYTimes, Sept. 24, 2019

WeWork, which started its first office space in 2010 at SoHo, New York City, now has about 800 locations in about 124 countries. It’s founder, Adam Neuman, the charismatic and eccentric leader, became a disruptive force in the commercial real estate industry by providing shared workspaces on flexible terms to startups and small businesses. WeWork built trendy offices with beer kegs and ping-pong tables for the millennial-driven economy. As its popularity grew, it was able to acquire large clients such as Microsoft and IBM. The six-foot-five Neuman, with his easy charm, was able to position his company, not as a real estate firm, but as a “community” or as a “movement.” The Japanese investor, SoftBank was one of WeWork’s early investors, which helped Neuman fulfill his global ambitions. At one point, WeWork was valued at $47 billion, making it the most valued American start-up.

As WeWork’s global footprint grew, and as the company matured and started preparing for an IPO, WeWork’s cash burn and mounting losses became concerning. In 2018, the firm had about $2 billion in losses on just $1.8 billion of revenue. The firm currently has about $2.5 billion in cash and burns cash at the rate of $700 million per quarter. At the current rate, the firm could run out of cash by early next year. On October 22nd 2019, SoftBank took 80% of the firm’s ownership and offered a $5 billion rescue package. This may help in the short-term, but whether WeWork can survive over the long-term remains highly questionable.

Sanjeev Kanekal

 

 

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