WeWork, the company that was once valued at $47 billion, has issued warnings of its potential bankruptcy, raising concerns and questions about its future.
Last week, WeWork claimed “substantial doubt” about the coworking-space-based company’s ability to function despite its “going concern” status, considering the resources needed to operate correctly. Since WeWork partners with large commercial companies globally, the COVID-19 pandemic caused enterprises to lease buildings and turn to remote work, leaving WeWork in heavy debt.
“Our losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern,” said WeWork.
The company also added that it looked into strategic alternatives, such as restructuring its debt, seeking equity capital, reducing business operations, selling assets, or resorting to other measures to obtain relief under the US Bankruptcy Code.
WeWork’s stock has been consistently below $1 since mid-March, crashing down 26% to 15 cents in extended trading on Tuesday. Its current cap is below $500 million. The company also suffered a net loss of $700 million in the first half of 2023 after tumbling $2.3 billion in 2022. As of June 30, WeWork had $205 million in cash, equivalents, and total liquidity of $680 million. Its long-term debt accrues to $2.91 billion.
WeWork initially decided to go public in 2019, releasing an initial prospectus in August of the same year. With complete financial transparency, the business received criticism over its excessive expenditure and risks, along with founder Adam Neumann’s turbulent relationship with the company.
The IPO the company aimed for four years ago did not come to fruition. SoftBank founder and CEO Masayoshi Son deemed his WeWork investment “foolish,” claiming his company handled the majority of the business operations in a $5 billion financing deal, forcing Neumann to step down.
In 2021, WeWork achieved its status as a public enterprise through a merger with a Special Purpose Acquisition Company (SPAC). However, it continued to face challenges. According to WeWork, its revenue only witnessed an increment of 3.6% year-over-year in the second quarter and was reduced by 4% in the US, which accounts for 41% of its sales.
Moreover, economic instability caused WeWork members to resign, causing revenue and cash flow to dip. Even SoftBank reduced its WeWork investments. The company invested $6 million in WeWork’s revenue in the second quarter, a step down from its $10 million contribution in the second quarter of 2022.
Three board members handed over their resignation last week due to a “material disagreement regarding Board governance and the Company’s strategic and tactical direction.” Daniel Hurwitz, WeWork’s chair since May, was one of the three board members to resign.
WeWork is still looking for a permanent leader. The company announced in May that CEO Sandeep Mathrani would leave his post within days, making board member David Tolley, a former finance chief at Intelsat, the temporary CEO.