WeWork’s future: What to know after the company sounds the alarm on its ability to stay in business
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NEW YORK (AP) -- WeWork has sounded the alarm on its ability to stay in business, prompting speculation around the future of the troubled workspace-sharing company.
Last week, WeWork warned there was "substantial doubt" about the New York-based company's "ability to continue as a going concern" -- which is accounting-speak for having the resources needed to operate and stay in business. WeWork pointed to increased member churn, financial losses and the company's need for cash, among other factors, over the next year.
On Friday, the company announced that it would be moving forward with a 1-for-40 reverse stock split in a bid to maintain its listing on the New York Stock Exchange.
The value of WeWork shares have plunged since the company went public in October 2021, after a spectacular collapse during its first attempt to do so two years earlier -- which led to the ouster of its CEO and co-founder, Adam Neumann. WeWork was valued at $47 billion at one point, before investors started to drop off due to Neumann's erratic behavior and exorbitant spending.
WeWork has made notable efforts to turn the company around since Neumann's departure, with executives pointing to improvements in annual revenue, significant cuts in operating costs and other growth opportunities as workplaces emerge from the COVID-19 pandemic. Still, experts say the risk of bankruptcy is on the table -- bringing in questions around implications for the already-weakening world of office real estate.
Here's what you need to know.
What is WeWork?
WeWork is a provider of coworking spaces. The company leases buildings and divides them into office areas to sublet to its members, which include small businesses, startups and freelancers who want to avoid paying for permanent office space.
WeWork was founded by Neumann and Miguel McKelvey back in 2010. The startup promised to revolutionize workspaces and saw a meteoric rise in its early years, but over time, WeWork's operating expenses soared and the company relied on repeated cash infusions from private investors.
Since Neumann's 2019 ouster, the company has seen several leadership changes. Most recently, Sandeep Mathrani, who joined WeWork in 2020, stepped down in May -- bringing David Tolley into the position of interim CEO.
"WeWork's challenges are a legacy of its earlier and very aggressive expansion… And the costs (that the company bears from) that expansion continue," Sam Chandan, director of the Chao-Hon Chen Institute for Global Real Estate Finance at New York University's Stern School of Business, told The Associated Press earlier this week. "By many measures, company revenues and performance is improving, but not quickly enough."
As of June 30, WeWork had 777 systemwide locations across 39 countries, the company said in last week's earnings call. Of that, WeWork reported supporting 906,000 workstations and 653,000 physical memberships -- equating to 72% physical occupancy. That's down slightly from the 75% physical occupancy seen at 779 systemwide locations WeWork reported operating at the end of 2022.
On Friday morning, WeWork's market capitalization stood at about $260 million. Shares were down more than 91% year end to date.
Is WeWork
closing its doors?
No, at least not yet. But risk of bankruptcy is on the table, experts say.
WeWork has not filed for bankruptcy since last week's announcement, and "anything is a possibility," Samuel Rosen, assistant professor of finance at Temple University's Fox School of Business, notes. "Whether or not this particular company… can actually get out of its current situation, that's yet to be seen. History would say it's possible, although I don't know if I would say it's probable."
There's also a big difference between liquidation bankruptcy and restructuring bankruptcy. Depending on the type of filing, bankruptcy could help mitigate some challenges WeWork faces through reorganization and other efficiency efforts, Rosen said -- noting debt collectors will sometimes push for bankruptcy sooner rather than later, because they don't want to see "risky action that would put their claims at further risk."