WeWork, which got rebranded as The We Company in 2019, has postponed its much-anticipated initial public offering with the completion to occur at the end of this year. The market analysts remained clueless whether WeWork is a real estate company or a technology one. They believed that the valuation is likely to be lesser than the $47 billion, which was determined in January after SoftBank made its last investment. Why WeWork delayed the IPO? There are five reasons behind this.
The company’s biggest investor SoftBank Group has called off the offering on concerns of business prospects and valuation, which is now at only about $15 billion. It is expected that SoftBank could provide investments at least until WeWork lowers its losses and turns its business to better prospects. But when will WeWork turn profitable?
The question remained unanswered due to the gloomy future for WeWork, which is primarily a provider of shared workspaces for technology startups. However, SoftBank, which would become the biggest beneficiary when WeWork achieves profits, is highly optimistic about the company’s future due to its footprint in the real estate shores.
A recession could be dreadful for a newly-listed company as investments might be reduced. The signs are getting stronger of growing weakness in different parts of the globe. As per data from IHS Markit, over 60% of the countries around the world are currently witnessing a contraction in manufacturing. During a global recession, the company could turn vulnerable due to its model, which relies on a mix of long-term liabilities and short-term revenue.
IPO target shortage
Investors fear that the company could face a shortage in raising the IPO target, which is set at $3 billion to $4 billion. The shortage would value the company at less than the $12.8 billion in equity. The company has been depending on the offering as an important source of capital. Also, investors shifted their focus on profits instead of growth at any cost
The pileup of operating losses, along with higher expenses due to pricey lease agreements and executive payout, could hurt the company at least for the next 2 to 3 years. The company is not expected to achieve profitability in the next few years due to the increase in capital expenditures and operating expenses.
The company had consolidated long-term debt of $1.34 billion and long-term lease obligations of $17.92 billion as of June 30, 2019. The high level of debt could have consequences, including limiting its ability to obtain additional financing, requiring a substantial portion of cash flow to be dedicated to payments on obligations, and rising vulnerability to general adverse economic and industry conditions.
The company has total cash and cash equivalents of $2.47 billion as of June 30, 2019, while the total equity deficit stood at $2.3 billion. There remained no assets with the company. The company has been experiencing poor cash management, a reduction in cash inflow, and an increase in expenses. This could lead to insolvency but SoftBank backing along with other borrowings could save WeWork.
The delay in the IPO remained beneficial for the investors but WeWork still has to manage the expenses and debt ahead of its listing. The company has to find ways of tackling these issues. The delay, which raised concern over its business prospects, governance, and valuation, is expected to impact the offer price and turn unfavorable for the office-rental company.