Canceling its initial public offering (IPO) plan for October, WeWork's biggest investor SoftBank saw one of its biggest investments, WeWork's initial valuation of $47 billion at the beginning of the year going down to what many are predicting to below $20 billion.
SoftBank's investment in the office sharing company is around $7.5 billion.
Not included in this amount is the $1.5 billion that will get executed next year under a warrant agreement and the $1.6 billion that went to WeWork's subsidiaries in China and Japan.
With SoftBank's holdings and investments in WeWork, the break-even amount for the Japanese conglomerate's stake would be around $24 billion.
If the valuation stayed at $47 billion, it will be SoftBank's major windfall.
However, We Co., the parent company of WeWork, has a prospectus that shows it spent $1.93 billion in 2018 on revenue of $1.82 billion.
What's more, the company was losing money 25% faster in the first half of this year compared to the same period last year.
With the valuation's trend going down, it looks like it might reach below $20 billion.
Once this happens, SoftBank will lose big money.
According to Chris Lane, a senior analyst at New York brokerage Sanford C. Bernstein, if WeWork's valuation becomes $20 billion, SoftBank and its subsidiary, Vision Fund, will have $1.3 billion in paper loses with $600 million for SoftBank and $700 million for Vision Fund.
The moment the company's valuation reaches $15 billion, the loss will reach $3.8 billion.
The new Co-CEO of WeWork Artie Minson and Sebastian Gunningham stated that IPO is getting postponed so the focus can be given on the company's "core business, the fundamentals of which remain strong."
They also added that WeWork will revisit the public equity markets in the future.
The problem of WeWork and SoftBank started as soon as the company's filing reached the Internet.
Analysts, investors, and journalists naturally started digging and found not only a byzantine corporate structure but also a list of potential conflicts between WeWork former CEO Adam Neumann and the company together with glaring manifestations of losses in profits even if the company's revenue doubled.
It's 359-page S-1 filing also didn't explain how WeWork would become profitable.
Likewise, the part in the filing showing risks to investors has almost 30 pages on it.
What brought the valuation down were the potential conflicts of interest between the company and its CEO that got dug up.
Neumann is one of the owners of the four buildings that WeWork leased.
He also got personal loans from the company at below-market rates to which it was reported that he used it to fund his lifestyle.
The most glaring of these conflicts of interest was when Neumann had bought the trademark to the "We" name through a holding company and got $5.9 million to license it to WeWork.
These, along with many other questionable behaviors, proved too much for everyone and things started going downhill for WeWork's IPO.
