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WeWork has decided to revise downwards its initial valuation to $20 billion. How it intends to go through with the IPO remains unknown. Investors have already indicated skittishness following potential conflicts of interests on the part of the CEO.
Corporate space provider WeWork is said to be considering either reviewing its market valuation down to $20 Billion or outright cancellation of its IPO. According to sources familiar with the matter, the company is under pressure by shareholders to cancel its upcoming IPO due to several factors.
Although the CEO Adam Neumann has been bullish about getting the IPO off the ground but major wall street heavyweights aren’t so sure after the second downward revision of the company’s valuation in less than 72 hours.
A Debt-Dependent Company
WeWork in the last decade or so of its existence hasn’t turned a profit. At least not yet. Based on the model of obtaining long-term leases from larger real estate holdings and compartmentalizing them into smaller spaces for retail use, the concept though noteworthy hasn’t yet been able to break ground in terms of profit on its business model.
Although the organization is indeed global with over 100 operations in 29 Countries, it still needs to draw upon a $3 billion line of credit after staggering losses of $1.9 Billion as compared to revenues of $1.8 Billion. The net losses show promise that with a few adjustments in its operations and business model the company may yet be able to turn a profit.
Certain CEO Concerns
Certain activities of CEO Adam Neumann’s have also been causing concerns among both potential investors and current shareholders. Personal conflicts of interest have allegedly raised eyebrows in certain quarters.
Investments in real estate before lease by the company is one of the major sources of worry for many involved in the IPO process. With majority control of the stock of the company, practices such as the sales and borrowing against company stock have also raised a lot of questions.
Also, his charging the company $6 Million for the use of the “We” trademark has added a lot of pressure to the IPO process.
Besides its inability to turn a profit, the company’s operating costs are also rising in tandem with its revenues. The IPO filing indicates that although revenue doubled to $1.5 Billion in the first quarter of this year, losses also increased by 25% to $905 Million as well leading many to believe that a repeat of last years’ performance is quite possible.
The IPO underwriters Goldman Sachs and JPMorgan Chase are said to be in meetings over the new valuation revision. Initially, Goldman Sachs had made a valuation prediction of $65 Billion at a pitch for the role in the listing of its shares.
Before now, many factors were against the company rather than for it being a sweetheart for investors. Mixed reactions rather than the usual bullish sentiment were noticed among investors and analysts alike.
It remains yet to be seen how the IPO will play out. However, for now, WeWork has already become a tough sell to investors. It may yet bounce back from its current woes but what could have been a great company with a stellar business model has now been held back by trivial corporate governance issues.