SoftBank-backed WeWork doubles quarterly loss to $1.3b

Signage is displayed on glass doors at the WeWork Cos. 32nd Milestone co-working space in Gurugram, India, on Monday, Feb. 18, 2019. Photographer: Ruhani Kaur/Bloomberg

WeWork reported a net loss of $1.25 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 initial public offering that veered off the rails, a combination of events that nearly brought the company down.

Revenue in the quarter was $934 million, up from $482 million a year earlier but failing to keep pace with the steeper losses, according to a financial document that was presented to bondholders Wednesday and reviewed by Bloomberg. A spokeswoman for WeWork parent company We Co. declined to comment on the report.

In an email to staff Wednesday that was seen by Bloomberg, WeWork’s co-chief executive officers, Artie Minson and Sebastian Gunningham, described the quarter as a “difficult chapter” for the company and said they’re 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 $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 wasn’t until the final weeks of the quarter, which ended in September, that WeWork realized 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 $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. The company is seeking a new CEO, and T-Mobile US Inc.’s John Legere is among the candidates.

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. Employees are sitting on a lot of stock, much of which is now underwater. WeWork doled out $220 million in stock-based compensation in the first three quarters, nearly five times what it spent in the same period last year.

Based on the company’s performance in September, WeWork estimated it would generate $4.2 billion in revenue over the next 12 months, compared with $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.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.