- WeWork’s bonds are falling quickly.
- SoftBank Group Corp is considering shelving the IPO after its target valuation may be less than half of what it secured from its biggest backer
- WeWork parent We Co. cautioned in its initial public offering filing that if it continues growing fast, it “may be unable to achieve profitability at a company level for the foreseeable future.”
- The planned listing of WeWork follows pretty weak initial trading.
WeWork ‘s planned IPO looked like a lifeline for a company that lost more than $1.6 billion last year. Not only was it supposed to raise about $3.5 billion from equity investors but also it would free up an additional $6 billion in debt financing that was contingent on a successful IPO.
But now, as doubts about the stock offering mount, WeWork’s bonds are falling quickly. Traders continuously pushed the price down on its notes due 2025 below face value for the first time since Aug. 13, moving its yield above 8%.
Potential for a stalled WeWork IPO is spooking bond investors
It’s something we’re monitoring all the time,” Kevin McNeil, an analyst at Fitch Ratings, said of the potential for the company to defer or delay the IPO. “To the extent that it does not have the IPO as an option, it’s going to have to respond by changing its growth profile and or finding alternative sources of growth capital.”
A spokeswoman for WeWork declined to comment.
WeWork parent We Co. cautioned in its initial public offering filing that if it continues growing fast, it “may be unable to achieve profitability at a company level for the foreseeable future.”
When the IPO of WeWork was initially rumored, there was talk of the company being priced at about $60 billion or more, but the longer investors have had a chance to look at the prospectus, the less enthusiastic they seem to have become about the company, with a news story on September 9 saying that the company was looking at a drastically discounted value of $20 billion, which would make Softbank, the biggest (and most recent) VC investor in WeWork, a big loser on the IPO.
Business Model of The WeWork: A leveraged bet on flexibility
The WeWork business model is neither new nor particularly unique in its basic form, though access to capital and scaling ambitions have put that model on steroids. By that it means that most traditional real estate companies that have tried the WeWork business model historically have abandoned it, for micro and macro reasons, and the test of the WeWork model stands for whether the advantages it needs to bring to the table, and it does succeed in bringing some, can help it succeed where others have not.
The planned listing of WeWork follows pretty weak initial trading at other startups including Uber Technologies Inc and Slack Technologies Inc, both backed by SoftBank.
While SoftBank and its Vision Fund emphasize their long-term investing credentials, founder and CEO Masayoshi Son has set out an ambitious IPO pipeline for tech investments spanning ride-hailing, fintech and health startups.
Till June end, the fund recorded the value of $71 billion in investments in 83 startups as having grown by $20 billion. From then the share price of the portfolio companies Slack and Uber have both fallen by around a third.
SoftBank has already said that the investments receive a pinch of confidence as third parties tend to come in as co-investors or by making some follow on investments at the same or some higher valuations.
When such a tech company shelves an IPO due to a much lower valuation than what is expected, investors are usually expected to take that fall into account when appraising their stakes.