WeWork is finally going public — at a greatly reduced valuation

Don’t count the company out just yet.

SHANGHAI, CHINA - AUGUST 13, 2019 - Employees work at a WeWork office in Shanghai, China, Aug. 13, 2...
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Co-working business WeWork is about to go public. The once high-flying company reached a valuation of $47 billion at its peak on the idea of selling flexible office spaces to entrepreneurs and freelancers, but it all came crashing down after WeWork was met with reality: being a landlord to small tenants, who are allowed to leave at any time, is not worth anywhere near $47 billion. Neither is trying to create a whole network of businesses that feel a little cult-like and which don’t have clear paths to profitability.

Through a SPAC, or special purpose acquisition company, WeWork now intends to go public at a much lower valuation of just $9 billion. The new valuation reflects the extent of the strip-down WeWork has faced not only from investors who dismissed it for marketing itself as a tech company, but also from a global pandemic that shaken up the real estate industry.

SPAC, huh? — In layperson’s terms, a SPAC is a company that’s already gone public on the stock market. Except, it doesn’t actually have a business itself. Instead, a group of sophisticated individuals with strong reputations endorses a shell company so that it can raise money from investors on the promise of using the funds to buy another promising, private company. The idea is that a private company like WeWork doesn’t have to go through all the scrutiny involved with pitching itself to the public (or the Securities and Exchange Commission), instead relying on people who already have a pedigree to raise some cash and then buy it. For investors, they get to buy a company when its stock price is low and (hope to) gain a lot down the road.

The strategy has become incredibly popular in the past year as a way for startups to go public quickly and with less scrutiny. That’s probably what makes it ideal for WeWork, frankly. Scrutiny is what undid it last time. The company famously began its fall after it filed to go public in 2019 and investors saw its terrible financials. The company was forced to abandon the effort and fire its founder Adam Neumann, and its biggest investor, Softbank, was left with egg on its face.

Not a tech company — The story of WeWork is one of extreme hubris and deferment to tech founders, many of whom have been able to raise billions of dollars on the back of ambitious visions that aren’t always sufficiently tethered to reality. Just about everybody loved WeWork’s product... or professed to. The spaces were sleek and comfortable, and amenities like free coffee didn’t hurt either. It’s just that WeWork flew too close to the sun by trying to pitch itself as a tech company when all it really does is lease real estate and then rent out desks. When regulators saw that WeWork was burning billions of dollars with no end in sight on a business that doesn’t have tech-like profit margins (or any at all, necessarily) they understandably torched it. Yes, we know Uber lives on, but it’s managed to diversify and at least chart a course toward profitability.

WeWork over the years had to pay increasingly higher rent for office space, and it offers its own tenants flexible leases, meaning they can leave at any time without penalty — but WeWork itself has to continue fulfilling its own lease obligations. There’s a business there, just not one worth $47 billion. WeWork’s biggest competitor, Regus, is estimated to be worth $3 billion even though it has far more office space than WeWork.

Pandemic pivot — The company has now found a new pitch for itself in the pandemic era. As more people start to get inoculated, WeWork thinks workers will prefer a hybrid model in which they work from home most of the week but also go to an office on some days when they need to focus. The spaces that WeWork offers could be ideal if that rings true.