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WeWork has experienced a rather turbulent period but now it is expected that already in 2021 it will start getting profits.
WeWork Chairman Marcelo Claure has told the Financial Times in an interview published on Sunday that the company will begin to have a positive cash flow starting in 2021, almost a year ahead of schedule. The co-working space company had initially set this profitability target for 2021 ending following increased demand for its office workspace during the coronavirus pandemic. Before the ascension of Marcelo, WeWork had been plunged into a deep financial turmoil by the former Chairman and Co-founder Adam Neumann who resigned at the behest of the SoftBank Group Corp (TYO: 9984), WeWork’s main financier.
WeWork valuation had dropped from $49 billion in the first quarter of 2019 to $2.9 billion in March 2020 as reported by CNBC. WeWork’s financial and administrative woes have also caused the company to postpone its Initial Public Offering (IPO) filing. With Chairman Marcelo’s revelations, there’s a positive indication that the company is back to its winning ways.
Rise of WeWork and Damning Turmoil
WeWork is an American commercial real estate company that provides shared workspaces for technology startups and related services for other businesses. The company was founded in 2010, and it is headquartered in New York City. As of 2018, WeWork managed over 4 million square meters. WeWork’s parent company is The We Company. As part of the company’s business model, it designs and builds physical and virtual shared spaces and office services for entrepreneurs and companies. The company before Chairman Marcelo Claure took over had a workforce of about 14,000 and operated in about 849 outlets.
In January 2019, the firm rebranded to The We Company, and its valuation was stated as $47 billion. The Wall Street Journal noted that upon the release of its public prospectus in August 2019, the company was “besieged with criticism over its governance, business model, and ability to turn a profit.” WeWork lost over $2 billion in 2018.
In September 2019, following mounting pressure from investors based on disclosures WeWork had made in its S-1 filing in preparation for a stock market listing (IPO), company co-founder Adam Neumann resigned from his position as CEO and gave up majority voting control in WeWork. Amid growing investor concerns over its corporate governance, valuation, and outlook for the business, WeWork also formally withdrew its S-1 filing and announced the postponing of its IPO.
The New York Times called the company’s failed effort to go public and related turmoil, “an implosion unlike any other in the history of start-ups”, which is attributed to Neumann’s questionable tenure and the easy money previously provided to him by SoftBank. At that time, the reported public valuation of the company was around $10 billion, less than the $12.8 billion it had raised since 2010. Following Neumann’s resignation, SoftBank took over the reins of affairs in the company and installed its COO Marcelo Claure as the Executive Chairman in October 2019.
Getting Back on Track
Marcelo has had to restructure the company since coming into office, first by cutting its workforce from its 14,000 high to 5,600. In addition to the laying off of staff, WeWork sold off businesses including Flatiron School, Teem, and its share of The Wing.
“Everybody thought WeWork was mission impossible. That we had zero chance. And now, a year from now, you are going to see WeWork to basically be a profitable venture with an incredible diversity of assets,” Chairman Marcelo Claure told the Financial Times.
The national lockdown experience which forced top companies to work from home created an unprecedented opportunity for WeWork to boost its pitch appeal. With the demand for satellite offices or just want workspace for selected days of the week, WeWork has signed new leases with such companies as ByteDance, Citigroup Inc (NYSE: C), Microsoft Corporation (NASDAQ: MSFT) over the past month.
With the company’s 5-year turnaround plan, WeWork may yet rise to meet and surpass its highest valuation.