WeWork

[Money & Finance]

Look, it just got $3 billion in funding from SoftBank. 

With the new investment, the coworking startup is valued at no less than $42 billion. And if you feel like you've got déjà vu, you don't—SoftBank just really likes WeWork.

We present to you as evidence...

1) The Japanese conglomerate is WeWork's biggest investor, and the rest of the pack isn't particularly close.

2) WeWork raised $1 billion from SoftBank in August in a convertible note.

3) SoftBank tossed in ~$4.4 billion in a WeWork funding round last year.

So what makes SoftBank so bullish on WeWork? The financials WeWork released yesterday could be a clue.

• WeWork's Q3 revenue totaled $482 million, up from $241 million last year...but adjusted earnings for the first nine months of 2018 came in at a loss of $415 million (widening from a loss of $108 million last year).

WeWork said the losses were expected, given its plans to set up more desks in Q4 than it did in the entirety of 2017. And if it stays on track with sales, WeWork expects revenue to sprint past $2 billion over the next year.

[Mic Drop]

Office-leasing leviathan WeWork told investors last week that it had “substantial doubt” it could remain in business as customers continued to bail. The once buzzy biz said it lost nearly $400M last quarter, and the stock’s plunged 99% since its SPAC-tastic debut in 2021. It’s a far cry from 2019, when WeWork was valued at $47B and occupied more office space in Manhattan and London than any other company.

• Rowdy: In its private-company era, WeWork’s culture of free-flowing booze and wild employee parties helped lead to it losing $219K/hour for an entire year. After layoffs and the ousting of cofounder/CEO Adam Neumann, it needed a $9.5B SoftBank bailout.

• Empty: WeWork has reined in its spending since those Coachella-esque days, but now it’s losing customers as hybrid work takes over. Office-space availability hit an all-time high in April (picture: 1B square feet of empty cubicles). 

Not just a We problem… A US commercial real estate crisis is brewing. 70%+ of US employers are hybrid, and surveys suggest flexible work is here to stay. Now analysts predict a 35% drop in office values by 2025. Already, forced sales of commercial properties spiked in Q1 (owners couldn’t make mortgage payments), and office-loan delinquencies hit 5%. The one-two punch of lower occupancy + higher interest payments could bring about even more trouble. Morgan Stanley estimated that $1.5T in commercial real estate debt will come due in the next two years.

[Mic Drop]

WeWork rents nearly 20M square feet of office space — more than any other US biz — and one industry analyst said its collapse could serve as a “systematic shock” to major cities’ commercial real estate markets. If WeWork stops paying its landlords, they might struggle to pay their debts. Still, WeWork has argued that hybrid work will benefit its flex-working model — if it can keep chugging along.