WeWork, once valued at around $47 billion at its peak in early 2019, has lost nearly 98% of its stock market value in the past year.
WeWork, the flexible office space provider, is set to file for bankruptcy, according to sources familiar with the matter. The move comes as WeWork struggles with a substantial debt load and substantial losses. This decision follows persistent rumours regarding the company’s financial instability, which became apparent when it informed regulators that there were substantial doubts about its ability to continue operating over the next year.
WeWork’s troubles have taken a significant toll on its stock price, which fell by 32% in extended trading after the news was first reported by the Wall Street Journal. The company’s shares have plummeted by approximately 96% over the course of this year.
Based in New York, WeWork is now considering filing a Chapter 11 petition in New Jersey. WeWork has not commented on this matter.
The company has faced difficulties since its initial attempt to go public in 2019, which failed due to concerns about its substantial debts, losses, and management. The situation worsened when its founder, Adam Neumann, stepped down as chief executive a week before the company confirmed that its share sale had been cancelled. The company stated that scrutiny of Neumann’s leadership had become a significant distraction.
Several months after the failed IPO, the COVID-19 pandemic struck, changing the landscape of remote work and exposing WeWork to public criticism from tenants seeking to exit their leases. However, the company continued to operate, selling off ancillary businesses, reducing its workforce, and cancelling or modifying hundreds of leases in an attempt to mitigate its losses before it ran out of cash.
WeWork ultimately went public on the New York Stock Exchange in 2021 but at a significantly lower valuation. The Japanese conglomerate SoftBank invested billions in WeWork as it continued to post losses. The company, once valued at around $47 billion at its peak in early 2019, has lost nearly 98% of its stock market value in the past year.
Recently, WeWork announced an agreement with creditors to temporarily postpone payments for some of its debt. However, the grace period for these payments is nearing its end. As of June, the company had a net long-term debt of $2.9 billion and more than $13 billion in long-term leases, all at a time when rising borrowing costs are impacting the commercial real estate sector.
A potential bankruptcy filing by WeWork would represent a remarkable turn of events for the company. Privately valued at $47 billion in 2019, WeWork’s fall from grace is also a significant setback for its investor, SoftBank.
WeWork has experienced ongoing challenges ever since its initial public offering was scrapped in 2019 due to concerns about its business model and governance under founder Adam Neumann, who was ousted amid claims of a toxic work environment. While the company did eventually go public in 2021 through a merger with a special purpose acquisition company, it has continued to struggle, particularly due to the impact of the COVID-19 pandemic on remote work.
Office vacancies in the United States exceeded 20% earlier this year, according to real estate services company JLL. Additionally, Columbia University researchers noted a 45% drop in office values in 2020, with limited recovery expected in the company years.
In August, WeWork announced the departure of CEO Sandeep Mathrani, and board member David Tolley took over as interim CEO. Three board members also resigned in early August due to disagreements regarding board governance and the company’s strategic direction.
WeWork is now faced with the challenge of reducing the cost of its leases and seeking additional capital through debt or equity issuances or asset sales to remain viable. The company’s journey from a highly valued startup to a potential bankruptcy filing reflects the rapid changes and challenges faced by the flexible office space industry in recent years.
As WeWork navigates this critical juncture, it remains to be seen how the company will address its substantial debts and seek a sustainable path forward.