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🏢 Can WeWork Turnaround Its Fortunes?
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Market Snapshot 📈
S&P 500 (Friday's Close) 4,544.90 -4.88 (0.11%)
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🏢 WeWork: Working For Whose Enrichment?
Coworking numero uno WeWork (WE) went public last week through a Special Purpose Acquisition Company (SPAC). The company can only hope this marks the start of a turnaround in fortunes after a failed IPO, corporate governance issues, and a sharp drop in valuations. (Tweet This)
Great Cry Little Wool
Israel-born Adam Neumann and US-born Miguel McKelvey established an eco-friendly coworking space called GreenDesk in 2008. They sold that business in 2010 to establish WeWork with its first location in New York's SoHo district.
The seed funding came from Manhattan-based real estate developer Joel Schreiber, who acquired a 33% interest in the company for $15M. By 2014, WeWork's list of investors included JPMorgan Chase, T. Rowe Price, Goldman Sachs, the Harvard Corporation, Wellington Management, and Mortimer Zuckerman, the former CEO of Boston Properties.
In 2015, WeWork was named among the most innovative companies of the year by Fast Company Magazine. Fortune magazine chose WeWork as one of its three unicorns to bet on in January 2016. Back then, the company was valued at $10B.
In a new funding round in March 2016, the company raised $430M from Legend Holdings and Hony Capital, valuing it at $16B. In 2017 SoftBank weighed in with an investment of over $1B, the first of its deals from its new $100B technology fund.
A $500M funding round in July 2018, aimed at expanding its business in China, valued the subsidiary at $5B. It also secured another $3B from SoftBank in November 2018, enabling SoftBank to buy new WeWork shares by September 2019.
In January 2019, WeWork changed its legal name to We company and secured another $2B in funding from SoftBank, which initially wanted to invest as much as $16B but downsized the sum after facing opposition from other investments partners and financial market turbulence.
WeWork confidentially filed for an IPO in April 2019, looking to raise over $3.5B. Before the IPO, then CEO Adam Neumann liquidated shares worth $700M.
Poster Child Of Management Excesses
Then came reports of potentially illegal activities by Neumann - the fact that he was kicked off a private plane for carrying too much marijuana; that he threw a tequila-fueled Run DMC concert at work after firing 7% of the workforce for financial reasons; that he neglected attending board meetings.
The company then revealed it burned through $1.9B in cash the previous year and was on track to run out of cash. The company delayed its IPO until the end of 2019. Neumann was under investigation by the New York State Attorney General for self-dealing to enrich himself.
For instance, Neumann purchased the trademark for the word "We" and charged WeWork a sum of $6M to transfer it. All of this led to the inevitable. For a company whose valuation had soared to $47B and attracted $18.5B in investments from SoftBank alone, in May 2020, Masayoshi Son had valued WeWork at $2.9B.
In March this year, WeWork agreed to the $9B SPAC merger with BowX Acquisition. BowX raised $420M when it went public in August last year. As part of the deal, SoftBank retained a majority stake in the company but agreed to a one-year lock-up period on their shares.
The concerns are not over yet. WeWork reported a quarterly loss of $2.1B as of May 2021 and claimed to have 490K customers during Q1 this year. After the wild excesses of the past few years, WeWork today desperately needs a round of image cleansing. WeWork and its management have their work cut out!
WE ended at $13.02, up 11.38%. Its market cap is right around $7.3B.
Company Snapshot 📈
WE $13.02 +1.24 (10.53%)
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Today's Market Terminology: Capacity Expansion
Capacity expansion is the process of adding facilities of similar type over. time to meet a rising demand for their services
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