Just four years ago, shared workspace provider WeWork (NYSE: WE), then headed by Israeli investor and entrepreneur Adam Neumann, was preparing for a huge flotation. Yesterday, it warned of possible insolvency. "As a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the Company’s ability to continue as a going concern," WeWork stated in its second quarter financials.
The deterioration in the position of the company, which in the past was valued by SoftBank at $40 billion, is not news, but nevertheless the announcement comes as a surprise, considering the number of commercial buildings in Israel and around the world that bear the company’s name. The combination of the Covid 19 pandemic, which led many companies to abandon leasing agreements in favor of remote working, and the subsequent economic downturn, left WeWork with debts and cash-flow problems.
"The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plan to improve liquidity and profitability over the next 12 months, which includes, without limitation: Reducing rent and tenancy costs via restructuring actions and negotiation of more favorable lease terms; increasing revenue by reducing member churn and increasing new sales; controlling expenses and limiting capital expenditures; and seeking additional capital via issuance of debt or equity securities or asset sales," WeWork states.
WeWork’s revenue in the second quarter was $844 million, up 4% on the corresponding quarter of 2022, and it made a net loss of $397 million, which represented a $238 million improvement over the corresponding quarter. In 2022, the company made a loss of $2.3 billion. At the end of the second quarter of this year, WeWork had $680 million of liquidity, consisting of $205 million of cash and $475 million of capacity under its delayed draw, first lien notes, of which $175 million were drawn in July 2023.
WeWork’s share price closed at $0.2098 yesterday, giving the company a market cap of $166.3 million. The stock has been traded at under $1 since mid-March.
In 2019, WeWork sought to make an IPO, and published a prospectus in August that year. The figures came in for sharp criticism, because of the expenditure and risk that the company took on. The problematic behavior of the founder, Neumann, also came in for criticism.
The IPO never took place. The main shareholder, Softbank, took control of the business with a $5 billion financing package and forced Neumann to quit.
In 2021, WeWork became a public company through a SPAC merger, but that has not led to recovery in the business.
Published by Globes, Israel business news - en.globes.co.il - on August 9, 2023.
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