Now that WeWork has finally acquiesced to growing chorus of investment firms and bankers calling for the company to shelve its deeply troubled IPO, which it did this morning (the offering is slated to take place in October "at earliest"), CEO Adam Neumann would like his employees, and the general investing public to know something: He found the experience of watching four-fifths of his company's valuation evaporate during a string of media reports "humbling."
According to the Financial Times, Neumann expressed this sentiment during a webcast on Tuesday for company employees, and added that he needs more time to deepen his understanding of how a public company is supposed to be run. The 40-year-old founder, who has been lampooned as a "caricature" worthy of the TV show "Silicon Valley", said that while he knows how to run a private company, he hadn't received enough "feedback" to understand what needed to change.
Unsurprisingly, some employees who have clashed with Neumann in the past are finding it hard to forgive the CEO. One employee who worked closely with Neumann in the past said his "outsized personality" played a "huge role" in derailing the offering.
But there was little mia culpa in Neumann's feeble attempt at contrition was leaked to the press just as the company's bonds were taking another beating on Tuesday. WeWork, which has burned through billions of dollars in private financing over the past 10 years and never turned a profit, had lined up a $6 billion credit facility from a group of syndicate banks. But the loan was contingent on the successful completion of an IPO, which would have netted WeWork another $3 billion.
Without another influx of capital, WeWork could swiftly find itself on the cusp of a liquidity crisis, as it continues to burn $2 for every $1 in revenue. During the first half of 2019, the company reported operating cash outlays of $2.6 billion, nearly matching its cash burn for the entirety of 2018.
But WeWork's biggest backer, the Japanese telecoms firm/VC megafund Soft Bank, demanded that WeWork delay the listing after potential investors expressed extreme trepidation about buying into the offering, particularly during such a fragile market that has already seen its fair share of embarrassing IPO flops by "unicorns" like Uber and Lyft.
Circling back to the webcast, Neumann was joined by his co-founder, Miguel McKelvey, who is also the company's "chief culture officer", as well as Artie Minson, WeWork's CFO.
Many analysts who have been tracking WeWork doubt that a few months' delay will make much of a difference. One analyst insisted that he's never seen such a distinct lack of enthusiasm for such a wildly hyped-up startup.
John McClain, a portfolio manager at Diamond Hill Capital Management, said he could not remember another unicorn - a privately held start-up valued at more than $1bn - having "zero support from either debt or equity investors."
"Their borrowing model is seriously in question at this point," he added. "There is not a level that we could become interested in owning this company based on the business, the governance, and the financial statements."
Thanks to the WeWork business model's "susceptibility to recession," it's extremely likely that whenever it raises money next, whether in the private or public markets, that WeWork's valuation wouldn't exceed $10 billion.
Barry Oxford, an analyst at brokerage DA Davidson, said the value of the company was likely to fall below $10 billion given its "susceptibility to a recession, current cash burn rate, corporate structure, and corporate governance."
Neumann tried to assuage investors' concerns about the firm's governance, which delegated a tremendous level of control to Neumann and his wife, Paltrow-cousin Rebekah Neumann, by reducing the voting power of his special Class B and C shares, along with a few other relatively minor concessions. That, apparently, wasn't enough.
For all we know, the tweet below could prove eerily prescient (it doesn't sound like much of a departure from where we are right now).
The year is 2022. WeWork still hasn’t gone public and is valued less than $1 billion, the U.S. has negative interest rates and the S&P hits 4,000 on hopes of a deal with China— Hipster (@Hipster_Trader) September 17, 2019
And who knows what scandals or other issues (like, say, malfunctioning equipment) could rock the company in the interim?
My friend’s entire company is locked out of their WeWork office because an umbrella fell, jamming the door.— Neeraj K. Agrawal (@NeerajKA) September 17, 2019
No one can figure it out. It’s been like this for 2 days. pic.twitter.com/ggaUkgYRFR
Maybe a buyout is the best Neumann can hope for?
Can you imagine if one day Microsoft acquired WeWork and named it Microsoft Office?— Aaron W ☁️ (@as_w) September 13, 2019