WeWork’s breakneck expansion comes to a screeching halt; growth near stalls in wake of failed IPO

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Updated: December 26, 2019 8:32 PM

WeWork last week had said it has arranged a $1.75 billion letter of credit with Goldman Sachs that is likely to be available in January 2020.

wework, WeWork revenue, wework valuation, wework IPO, wework newsWeWork has been looking to trim costs. (Reuters)

Following its IPO fiasco, beleaguered coworking startup WeWork’s rampant expansion has come to an almost screeching halt. From 425 locations with which the loss-making office space provider began 2019, as mentioned in a company release of $6 billion fundraise from SoftBank to around 485 locations in May when it partnered with American Express to offer discount to its cardholders, to 718 locations at the beginning of July and 837 locations during early October, the number of locations has only increased to 848 ‘open and coming soon locations’ currently across 123 cities, according to the company’s website.

The percentage growth in 2019 based on the rise in the number of locations has been 14 per cent in May from January, which increased by 48 per cent till July, but went down significantly by 16.5 per cent in October only to further go south by just 1.3 per cent. The number of locations for July and October was reported by The Telegraph.

WeWork has been looking to trim costs including reportedly laying off a few employees, shutting or closing non-core entities that it acquired earlier. In October this year, the company had said it will be closing its private school — WeGrow. “As part of the company’s efforts to focus on its core business, WeWork has informed the families of WeGrow students that we will not operate WeGrow after this school year,” a WeWork spokesperson had said in a statement cited by the Huffington Post.

The co-working giant, however, remains solely focused on expanding its platform globally “through end-to-end solutions as well as revenue-sharing joint ventures and management and franchising agreements,” WeWork said in a statement to Financial Express Online. The company currently has 625 locations in over 125 cities and is expecting to grow to more than 1,000 locations and 1 million desks by the second half of 2020, it added.

Also read: Amazon, Flipkart, other e-commerce portals to lose market share to these online retail startups

WeWork’s founder Adam Neumann raised close to $11 billion overall from SoftBank and was supposed to take the company public at $47-billion valuation but that failed even at a reported valuation of just $20 billion. The valuation had grown from earlier $20 billion after SoftBank put invested $3 billion and $2 billion in WeWork in November last year and January this year. SoftBank offered bailout package reportedly worth $9.5 billion to WeWork in exchange for 80 per cent stake in the co-working company and valued it at $7.8 billion —  a far cry from $47 billion. The valuation was reported by SoftBank in its earnings results for the six-month period ending September 30, 2019. 

WeWork last week had said it has arranged a $1.75 billion letter of credit with Goldman Sachs that is likely to be available in January 2020. “We are pleased that WeWork and SoftBank Group Corp have entered into a commitment letter with Goldman Sachs for a new $1.75 billion senior secured letter of credit facility,” said a statement by WeWork. The credit facility is part of the billion bailout package.

WeWork and Uber could account for $12 billion in mark-downs, according to the Jefferies report on SoftBank Group in September this year. However, this would have little impact on the group. “Given that SoftBank Group’s stake in SoftBank Vision Fund equity is closer to 50 per cent, the direct impact on SoftBank Group’s Gross Asset Value will be $6.3 billion or only 3 per cent of Gross Asset Value,” according to Atul Goyal, Equity Analyst, Jefferies.

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