After the closing bell on Tuesday, August 8, global co-working behemoth WeWork voiced "serious doubts" about its ability to continue operating amidst persistent losses and a stream of office space members canceling leases. The company's future, as highlighted in its financial report, largely hinges on its success in the upcoming 12 months to cut leasing costs, rein in expenses, curb capital outlays, boost revenues, and raise funds.
Following the announcement, WeWork's stock price nosedived over 30%.
Q2 Figures Paint a Mixed Picture
The quarterly report showcased revenues of $844 million for the company, a year-on-year growth of 4%, slightly below the anticipated $851 million. The net loss stood at $397 million, marking an improvement of $238 million year-on-year. Adjusted earnings before interest and taxes posted a loss of $36 million, substantially underperforming the expected adjusted profit of $26.8 million.
By the close of Q2, the company's occupancy rate hovered at 72%, a marginal increase from 70% the previous year.
Interim CEO David Tolley noted the company's robust year-on-year revenue growth and significant profitability improvements despite challenging business conditions. High member attrition, attributed to an oversupply in commercial real estate, the ongoing flexible workspace trend, and broader economic uncertainties, meant demand remained sluggish, leading to a slight decrease in membership.
As the COVID-19 pandemic swept in early 2020, WeWork's office spaces were almost deserted. Despite the global gradual recovery from the pandemic's effects, the firm's efforts to attract new tenants moved at a snail's pace, with market insiders viewing the company's revival as potentially unsustainable.
Leadership Shuffles and Historical Glance
Recent times have also seen a change in the company's leadership. Sandeep Mathrani, who took the reins as WeWork's CEO in early 2020, departed this May.
After the company's co-founder and former CEO, Adam Neumann, was ousted for failing to take the company public in 2019, Mathrani took over the top spot. On Tuesday, WeWork announced a board reshuffling with three independent directors being replaced by four newcomers.
From its inception in April 2011, offering services to New York startups, WeWork quickly expanded. By March 2016, the company had 80 co-working spaces in 23 global cities. It then rapidly drew the attention of numerous investors, with its valuation at one point nearing $50 billion, placing it among the top-tier U.S. "unicorns". As of the end of this year's Q2, WeWork's footprint spans 777 office locations across 39 countries and regions.
Interestingly, WeWork stands as a notable blunder in SoftBank Group's investment portfolio, having poured in over $18 billion. Yet, within months, WeWork's valuation plummeted from $47 billion to a mere $8 billion. In the fiscal year 2019, SoftBank recorded a loss of $4.6 billion on WeWork, joining Uber as one of the firm's most significant investment debacles that year.
Back in 2019, with the allure of the "shared economy", WeWork prepped for an IPO, only to pull the plug just before going public. Morgan Stanley's Chief U.S. Equity Strategist, Mike Wilson, believed the failed IPO marked the end of an era, suggesting that investors were signaling reluctance to foot the bill for overvalued ventures, saying the days of generously funding unprofitable companies were seemingly over.
WeWork eventually went public at the end of 2020. As of Tuesday's close, the company's stock price had eroded 85% since the beginning of the year.
