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WeWork is a shared-space real estate company that subdivides leases properties for businesses or individuals who need workspaces quickly and easily. I recently wrote about them a few weeks ago on the topic of their somewhat misleading financial numbers released in their S-1 IPO prospectus.
The company, which rebranded itself as the We Co., seemed to overly complicate the cost basis for many of its leased properties which in turn makes it really hard to evaluate the return on investment that it receives over time. Investors need to be able to evaluate how much profit that We Co. can earn, and when the cost basis is so hard to understand their ability to value the start-up becomes muddied.
WeWork looking to be a shaky investment
Perhaps that's why The Wall Street Journal reported earlier today that WeWork is delaying its IPO to an undisclosed date. We Co. was originally targeting an IPO in the next few weeks so this is rather startling, to say the least.
However much more concerning than that, is sources have been reporting to multiple outlets that the valuation itself the company is seeking has absolutely plummeted from a peak of around $47 billion, to now "somewhere in the 20's, perhaps on the lower end of that", which means we could be looking at a $20B valuation if the company decides to move ahead with its IPO.
The WeWork platform was valued at $47 billion just earlier this year when Japanese mega investment bank SoftBank plowed $2 billion dollars of new capital into We Co. at a valuation of $47B! It's exceedingly rare to see a company slash its valuation by more than half just weeks ahead of an IPO, and considering SoftBank has nearly $7 billion cash invested into We Co. we have to believe SoftBank is reconsidering its investment strategy in WeWork.
The change signals an air of desperation surrounding WeWork as it is surely attempting to clarify its value proposition to investors after a muddy start to things with its S-1. "Panic mode" might not be a horrible description of the situation at We Co. as the company must be able to raise capital to continue its business model since many of its investments (lease properties) are said to take multiple years to become truly profitable.