WeWork parent considers reducing valuation before IPO
|Toronto Star 05 Sep 2019 at 14:53|
The parent company of WeWork, the fast-growing operator of so-called co-working spaces, is considering selling shares in an initial public offering at a significant discount to its valuation from earlier this year, according to two people familiar with the situation.
The We Co. is now in talks to value itself at $20 billion to $30 billion (U.S.), said the people, who spoke on the condition of anonymity because of the sensitivity of the topic. The figure is well below the $47-billion valuation at which the company raised money as recently as January. The valuation could end up being closer to $20 billion, one of the people said.
If the lower number takes hold, or falls further, it would be a major blow for one of the most prominent companies to seek to sell shares in a public offering in recent years.
WeWork’s reconsideration of how to value itself is the latest sign that investors are wary of fast-growing companies that continue to lose money. The share prices of the ride-hailing companies Uber and Lyft, which fall into that category, have slumped since their highly anticipated public offerings this year.
Last year, WeWork had an operating loss of $1.7 billion on $1.8 billion of revenue, partly because of the steep costs associated with converting the spaces it operates.
The company’s reconsideration of its valuation was first reported by Bloomberg News.
WeWork’s business model also contains a substantial financial risk that could hurt it in a downturn. The company leases space from landlords for 15 years on average, then typically rents it out on contracts that run for less than two years on average. If WeWork were to lose customers, it would still have to make payments on the longer leases.
WeWork’s corporate governance has also faced criticism, in part because Adam Neumann, the chief executive, has voting control over the company.