WeWork, which quickly made a name for itself in the coworking space industry, has been incurring losses lately
3 min read
The largest shared spaces occupier WeWork rebrands itself to “We Company” after Japanese conglomerate Softbank slashed its previously intended investment of $16 billion to $2 billion. The move, however, comes as an assurance to existing investors that the company can overcome the massive losses it made in 2018.
On Tuesday this week, the chief executive of WeWork, Adam Neumann announced the company’s rebranded name in a hall packed with WeWork executives at a conference in Los Angeles. Citing the new divisions in the company, Neumann talked about how it is going to work. The key three divisions would be: WeWork, which runs 500 serviced offices across the world; WeLive, its co-living residences; and WeGrow, the education business run by Neumann’s wife, Rebekah Paltrow.
Founded in 2010 by Neumann, WeWork quickly made a name for itself in the coworking space industry, expanding its operations to 425 locations globally in a short span of time. The coworking space company that gives free crafted beers, snacks and coffees to its consumers, has been reeling under losses from the past few months. In the first nine months of 2018, losses reportedly quadrupled from a year earlier to $1.2 billion, on sales of $1.5 billion.
Why Softbank scrapped investment
Until last year, the Japanese giant had its eye on buying major stake of the American company by injecting more money in the company. WeWork was in talks with the private equity fund investor to fuel its expansion in China, Japan, South Korea and elsewhere in Asia, wherein Softbank envisioned pumping its $16 billion from Softbank’s Vision Fund to buy all outside investors of the company.
The recent decline in tech stocks amid global market turbulence influenced Softbank’s decision to pursue a lower investment than what the company has earlier planned.
However, in a statement to press, Softbank’s Masayoshi Son shows his confidence in the firm’s plans to turn profitable this year. Softbank and its Vision Fund invested $4.4 billion in WeWork last year and the Japanese company holds two board seats.
Why WeWork is in losses
The New York-based shared spaces company, WeWork has doubled its revenue every year for the past few years, but rapid expansion has led to heavy losses.
In the first three quarters of 2018, WeWork lost $1.22 billion and generated $1.25 billion in revenue, Fast Company reported. In past years, the company has attracted investment from Goldman Sachs and JP Morgan, as well as SoftBank.
The Japanese bank’s previous investment in WeWork valued the eight-year-old company at $42 billion, making Neumann’s remaining stake worth $2.5 billion.
WeWork, despite the huge valuation has yet to turn a profit and reported a loss of $723 million in the first half of 2018.
WeWork’s ambitious IPO plan
Softbank’s reversal on investment in WeWork has made a direct impact on its IPO plan. The shared space startup was planning to go public after the Softbank’s funding.
However, Neumann isn’t afraid to step back from taking less risks in the business. His firm belief in investing money remains the same, as he mentioned in the Los Angeles conference. However, it remains to be seen whether the company can show fortitude and turn things around to become profitable.