The company is considering further dropping its IPO valuation below $20 billion, with some investors pushing the company to delay its public offering into next year, per The Wall Street Journal. Meanwhile, the Financial Times reported late Monday that chief investor SoftBank was urging We to shelve its IPO plans entirely due to its plunging valuation expectations and underwhelming investor interest.
The shared workspace provider had planned to begin its roadshow as soon as this week, though the underwriters and WeWork's parent company were also said to be holding meetings to determine what needs to be done to drum up enough demand for shares or raise additional funds.
As SoftBank works to raise cash for its second Vision Fund, the Japanese conglomerate stands to lose investor confidence should WeWork debut at a severely discounted valuation, possibly resulting in paper losses for SoftBank after it had previously expected a substantial profit. SoftBank did not immediately respond to PitchBook's request for comment, while WeWork declined to comment, citing a quiet period due to its IPO plans.
A drop below the $20 billion mark would be a massive slide from the $47 billion valuation at which SoftBank invested in January and a dip from the company's last valuation prior to that corporate round. It would be nearing a level that WeWork hasn't seen in almost three years: The New York-based company was valued at $16.9 billion with a $690 million Series F in October 2016.
The WSJ first reported last week that WeWork stood to slash its valuation by more than half, with estimates somewhere in the $20 billion range, which would be one of the largest IPO markdowns on record. The company's dwindling expectations have come amid a frenzy of concerning revelations about the business and its founder. WeWork recently appointed its first female board member after the company was criticized for having an all-male board of directors, particularly on the heels of gender discrimination lawsuits filed in June. CEO Adam Neumann, in particular, has shaken investor confidence with his questionable business dealings, such as his initial acceptance and subsequent repayment of $5.9 million in ownership interest related to Neumann's transferring the "We" trademark claim, owned by his LLC, to the company he co-founded.
Neumann reportedly flew to Tokyo within the past few weeks to consult with SoftBank, the company's largest investor, which has cumulatively injected $10.65 billion into WeWork since 2017. In the meeting, the Japanese telecommunications conglomerate presented strategies to help avoid the steep devaluation, again per the WSJ, including the possibility of SoftBank purchasing a vast amount of IPO shares potentially costing upwards of some $3 billion, or perhaps injecting equity funding into the workspace provider while delaying the company's IPO until 2020.
SoftBank's hands may be tied, however. The conglomerate's chief Vision Fund investors, Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala Investment Company, have previously expressed disapproval of forking over more money for WeWork, citing an excessive exposure to real estate for both investors while the company's profitability potential remains unclear.
Additionally, whereas Uber and Lyft were once considered hot items regardless of their respective massive losses, WeWork's pre-IPO struggles may be a sign of the coming times. Apart from a sudden, sharp US stock market correction in late 2018, stocks have been on a bull run that is now showing signs of cracking in light of mixed economic data. This broader market evidence, coupled with the disappointing stock performance of recent IPOs such as Uber, Lyft, Fiverr and The RealReal, is suggestive of growing investor distaste toward taking on risk for VC-backed darlings that double as loss-making machines with no clear end in sight.
On the bright side, should WeWork go public at that sub-$20 billion valuation, incoming investors might finally catch a break. After all, a more modest valuation might be perceived as a bargain compared with, say, Lyft's upwardly revised, premium $72 IPO price, which has steadily bled down to its Monday closing price of below $45.
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