One prospective origin story behind the term ‘fiasco’ comes from the art of glass bottle making in Italy. When members of the public tried their hand at crafting beautiful long-necked glass bottles, the tricky technical task would sometimes get the better of them – leaving their creation looking a little bit rotund and shapeless. “Look! A fiasco!” they would joke, referring to the light-bulb shaped fiasco bottles that would be used to carry Chianti.
Today, however, the phrase ‘Look! A fiasco!’ might be more commonly used in reference to WeWork’s blundered attempt at going public in the summer of 2019.
The workspace giant had been going from strength-to-strength since WeWork’s formation in 2010 – boasting as much as four million square meters of working environments across 280 locations in 32 countries.
On paper, the company seemed perfectly primed to put an IPO in place – however, since the company’s decision to go public in 2019, WeWork’s valuation has been poleaxed and CEO Adam Neumann removed from his position – as a result, the IPO has been delayed ‘indefinitely.’
So, what’s happened to WeWork? And could the embattled company launch another attempt at going public in 2020 with a somewhat more successful outcome? Let’s take a deeper look at the uncertainty surrounding WeWork after a disappointing end to a promising decade for the business:
Charting the rise and fall of WeWork
August 14th, 2019 was a day punctuated by widespread optimism at WeWork. The workspace company, which had enjoyed exponential progress throughout the 2010s, was privately valued at $47 billion and had just declared its intention to go public.
However, this statement of intent suddenly turned sour. Its IPO filing with the Securities and Exchange Commission revealed billions in operating losses along with a huge collection of leases and plans for more aggressive spending.
The findings soon revealed that CEO and co-founder, Adam Neumann owned many buildings leased by WeWork, and the organization’s parent company, The We Company, was identified as having made losses of $429m on $436m in revenue back in 2016. This loss increased to $890m from $886m in revenue one year later. 2018 saw the company lose $1.6bn from $1.8bn in revenue and the first six months of 2019 showed The We Company post losses of $690m from $1.5bn in revenue.
Following on from WeWork’s IPO announcement, Adam Neumann continued to make unconventional business decisions – including cashing out $700m in stock options before the company’s IPO.
Just one week on from the IPO announcement, WeWork’s valuation came under intense scrutiny. US Presidential candidate Andrew Yang even intervened to call the company’s $47 billion value ‘utterly ridiculous – “if they are a tech company so is UPS. UPS trades for 1.4x revenue not 26x,” Yang explained.
(US Presidential candidate Andrew Yang criticizes WeWork’s valuation. Image: Twitter)
During this timeframe, Morgan Stanley withdrew their support for WeWork’s IPO after losing the lead underwriter role in the prospective deal and WeWork began to come under scrutiny for a distinct lack of female presence within the company.
Within a month, the Wall Street Journal and Bloomberg began reporting that The We Company was planning to cut its IPO valuation from its initial $47bn to $20bn – it was also reported that the company was considering delaying its IPO.
In a last-ditch attempt to build confidence in its IPO, WeWork restructured its management, limiting the influence of Neumann and banning his wife, Rebekah from the board. On September 13th, 2019, Reuters reported that WeWork was considering an even lower IPO valuation of $10bn.
Finally, by the end of September, new co-CEOs Artie Minson and Sebastian Gunningham make the decision of postponing WeWork’s IPO indefinitely. Stating that “we have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong. We are as committed as ever to serving our members, enterprise customers, landlord partners, employees and shareholders. We have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future.”
The postponement confirmed that it took just over six weeks for WeWork to mould a $47bn pot of gold into an empty fiasco. With the deposition of Neumann and his wife, there at least appears to be a sincere attempt from the company to reform and build new confidence with would-be investors. But is it enough for WeWork to rebuild its broken reputation in 2020?
Is a 2020 recovery possible?
Of course, the road to recovery for many businesses is a long one – especially following such a bungled attempt at launching an IPO.
2020 will likely begin with an industrial scale firefighting operation from WeWork. The management may have been restructured in a way that’s banished the perceived negativity of Adam Neumann, but there’s still likely to be lawsuits following on from that of former employee Natalie Sojka – who filed a suit accusing Neumann, majority shareholders SoftBank, and members of WeWork’s board of directors of ‘using their control of The We Company to benefit themselves to the detriment of the company’s minority shareholders.’
The class-action suit has already been dismissed as ‘meritless’ by a WeWork spokesman, according to Fortune, but it’s fair to say that 2020 will be a year of seismic PR efforts to turn perceptions of the company around.
2019 ended with WeWork accepting a SoftBank bailout proposal that acted swiftly in paying Adam Neumann to step down from the company. The deal values WeWork at around $8bn – which is just one-sixth of the company’s perceived value in August.
It’s fair to say that it’ll take considerably longer than a year to fully repair the reputation of WeWork. However, the company has moved quicker than many to limit the damage to its brand as much as possible. In a relatively short timeframe, the organization has swiftly deposed its CEO and replaced him in a matter of days. Yes, there will be a legal minefield to navigate, and expectations will need to be reassessed, but there’s no reason why WeWork can’t have a fruitful year so long as the company stays sensible.
Could a potential IPO be possible?
It’s important to take the ‘postponement’ factor of WeWork’s IPO with a pinch of salt. To cancel an IPO would be an admission of mismanagement and misguidance.
However, it goes without saying that WeWork’s $47bn IPO is long dead and buried – if it were ever alive in the first place that is. Such a valuation makes the company similar in stature to BMW.
Trying for another IPO could be an excellent way of proving WeWork has turned a corner following a tumultuous autumn period. The associated value would need to be dramatically scaled-down, and its reputation will remain in tatters for some time yet – but a blend of reputation management and enticing introductory prices could yet build some optimism among prospective investors.
Whatever path the new CEOs of Artie Minson and Sebastian Gunningham decide to take, it will be fascinating. WeWork is a unicorn company that grew comfortably into the 2010s – they may be facing another building process as we move into the 2020s, but there’s still time to transform the business into a significant IPO success.
About the Author
Daglar is a serial investor, Founder and CEO with over 20 years’ industry experience in aviation, logistics and finance. Graduated from Wharton School and Massachusetts Institute of Technology (MIT). Chairman at ACT Airlines, myTechnic and Mesmerise VR. CEO at Red Carpet Capital and Eastern Harmony. Co-Founder of Marsfields, ARQ and Repeat App.