We Co., the parent of the shared office space company WeWork, is postponing its plans to go public, the Wall Street Journal reported on Monday. The company was initially supposed to begin the roadshow for its initial public offering on Monday before making a debut on the Nasdaq next week, but investor concerns about WeWork’s actual value and leadership pushed those plans to at least next month. We Co. had reportedly been aiming to raise at least $3 billion, the sum required to secure a $6 billion credit line under an agreement with banks. The company found, however, that it would only be able to raise a little over $2 billion.* This last-minute decision is noteworthy because companies generally don’t postpone their IPOs after filing with the Securities and Exchange Commission—but given WeWork’s tumultuous rise, it might not be all that surprising.
WeWork’s business model involves leasing buildings, decking them out with sleek interior designs and luxury perks like arcades, taking care of utilities, and then subleasing to businesses at a premium. A major concern for investors is reportedly the lack of a clear path for the company to achieve profitability. In the first half of 2019, WeWork reported revenues of $1.5 billion and operating losses of $1.4 billion. While these sorts of numbers may have gotten a pass in the past, investors have lately grown wary of unicorns subsidized by bucket loads of venture capital. Shares of Uber and Lyft, companies that are both unprofitable, notably took a major hit after debuting on the market in the spring. In the event of a recession, analysts are unsure whether WeWork will be able to weather an exodus of clients who may want to downsize. Even when clients aren’t occupying WeWork’s spaces, the company is still contractually obligated to pay rent to the building owners. In other words, while it may have the sheen of a tech startup, WeWork is beholden to the fundamentals of the real estate business.
An unclear path to profitability contributed to a fiasco with WeWork’s valuation. In January, the company had boasted a $47 billion valuation, which would have set it up for the biggest IPO of the year. This was thanks in part to a $2 billion investment from SoftBank, one of the company’s biggest backers. In early September, WeWork slashed the number to $20 billion, one of the most dramatic valuation reductions in the history of IPOs. There are now reports that the company could debut between $10 billion and $12 billion.
The company’s co-founder and CEO, Adam Neumann, is another source of consternation. Controversies around potential conflicts of interest have plagued the 40-year-old tech mogul. The Wall Street Journal reported in January that Neumann had been leasing buildings he owns himself to WeWork, possibly allowing him to personally profit from the company’s rents.
He’s also tried to buy smaller stakes in buildings that WeWork planned to lease, only for the company’s board to stop him. In another unusual move, Neumann received a $7 million loan from his company and sold $700 million of shares in July.
The CEO has further wielded outsize voting power for board decisions and at one time held 2.4 million Class A shares, 113 million Class B shares, and 1.1 million Class C shares. On Friday, WeWork tried to assuage investors by reducing Neumann’s control, partly by halving the number of votes allotted to another class of special stocks he owns. Even so, he will still be in control of a majority of shareholder votes. The company has also stated that Neumann will not be allowed to sell any shares for the first year after the IPO and will only be able to sell 10 percent of his stake in the second and third years.
“The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year,” the company said in a statement on the IPO delay. “We want to thank all of our employees, members and partners for their ongoing commitment.” For now, they’ll have to commit to waiting.
Correction, Sept. 18, 2019: This post originally misstated that WeWork had found it would only be able to raise a little over $2 million. In fact, the company had found it would be able to raise a little over $2 billion.