(Nov 18): WeWork reported a net loss of US$1.25 billion ($1.7 billion) in the third quarter, eclipsing its sales and more than doubling its loss from the same period last year. The quarter coincided with a spending spree in anticipation of an IPO that veered off the rails, a combination of events that nearly brought the company down.
Revenue in the quarter was US$934 million, up from US$482 million a year earlier but failing to keep pace with the steeper losses, according to a financial document that was presented to bondholders on Nov 13 and reviewed by Bloomberg.
In an email to staff on Nov 13 that was seen by Bloomberg, WeWork’s co-CEOs, Artie Minson and Sebastian Gunningham, described the quarter as a “difficult chapter” for the company and said they were developing a plan to “provide a clear path to profitability”. That will include selling assets and cutting jobs, they wrote. Dismissals have already begun and are expected to number in the thousands.
WeWork had always prized growth above profit, but it took the approach to another level on the eve of its expected IPO. The deal was set to raise at least US$9 billion for the business in a combination of equity and debt. So, WeWork spent the summer filling up office space with about 115,000 new desks in the quarter, a record for the company. That brought total desks to 719,000. Partly thanks to that push, the occupancy rate in its offices declined to 79%, from 84% a year before.
It was not until the final weeks of the quarter, which ended in September, that WeWork realised how doomed its fundraising plans were. Investors recoiled at the office rental company’s deep losses and flimsy corporate governance. Adam Neumann, the longtime CEO, stepped down in late September under pressure from investors, and the company pulled its IPO prospectus on the final day of the month. WeWork had US$2 billion in cash that day, according to the document.
The money evaporated fast. WeWork was on track to run out of funds by November and needed an emergency financing from its largest investor, SoftBank Group Corp, to stay alive. SoftBank took majority ownership in that deal and has installed an executive, Marcelo Claure, to help turn around the business.
SoftBank has said it will buy stock from employees and other shareholders at a discounted rate, but that deal has yet to happen, according to the financial document. When it does, SoftBank will own about 78% of the company and less than half of voting stock.
Based on the company’s performance in September, WeWork estimated it would generate US$4.2 billion in revenue over the next 12 months, compared with US$1.8 billion in 2018. But the business may look very different soon, as the company prepares to dismiss employees and refocus on the core business of renting office space.
