It was the office rental start-up that promised to “change the world” and once commanded a valuation of $47bn.
But WeWork has warned there is “substantial doubt” over whether it will be able to remain in business as the flexible workspace company scrambles for cash to survive.
The New York-based firm, whose co-founder Adam Neumann liked to boast about how it would “elevate the world’s consciousness”, said its status as a going concern was in doubt because of its losses and need for cash to stay afloat over the next year.
The company added that it needed to improve its liquidity and profitability over the next 12 months, and would have to raise additional capital to keep operating.
The update sent its shares plummeting by as much as 27% during extended trading in the US on Tuesday.
WeWork said it would be trying to control its expenses, and reduce its rent and tenancy costs by restructuring and renegotiating leases with its landlords.
It will also attempt to retain current occupants of its workspaces, while finding new tenants, and try to raise money by selling some of its assets.
The company made a net loss of $397m (£311m) between April and June, though this was an improvement of $238m compared with the same period a year earlier.
The continued losses and warning about its financial position are just the latest problems for WeWork, once valued at $47bn by the Japanese investment group SoftBank, whose first attempt at a stock market listing collapsed spectacularly in 2019.
This led to the ousting of its chief executive co-founder, Neumann, who tried to market the flexible office rental business as a tech company but whose erratic behaviour and unfettered spending over time began to concern investors.
He built the business to become the biggest private landlord in New York and London, opening up workspaces in fashionable areas, and offering free beer and wine on each floor of its shared offices.
WeWork’s business model involves leasing buildings and dividing them into office spaces, which it lets out to tenants, including small businesses, startups and freelance workers, all of whom want to avoid paying for permanent office space.
A former executive at the workspace provider previously said the pandemic had given WeWork the opportunity to “reinvent” itself, and that it had seen demand rebound as workers returned to their desks after Covid lockdowns. However, WeWork has not been entirely successful in its attempts to reposition itself as a solution for firms looking to offer hybrid working to its employees.
The company’s interim chief executive, David Tolley, said WeWork had struggled in recent months from “excess supply in commercial real estate, increasing competition in flexible space”, as well as “softer demand”, while he said economic volatility had caused more tenants to end their leases and move on.
WeWork has just over 600 locations across 33 countries, and 512,000 physical memberships. It said this represented an occupancy level of 72%, although it had seen a 3% fall in its memberships over the past year.
The company, which was ultimately taken public in October 2021 through a special purpose acquisition vehicle (SPAC) by a new leadership team, is struggling to capitalise on the revolution in office working triggered by the pandemic, and from which its rivals appear to be benefiting.
WeWork’s results for the second quarter contrasted with the positive note sounded by its competitor IWG, which reported record revenues and a doubling of profits for the first half of the year on Tuesday.
IWG, which owns the Regus brand and operates globally, said it believed hybrid working would become permanent, because since the pandemic most office-based businesses had opted to allow their workers to split their time between their desks and home or another remote location.
Tolley said WeWork was able to “meet the evolving workplace needs of businesses of all sizes across sectors and geographies” and added that the company was working to transform and reduce its operating costs.
However, the company is still trying to shake off problems of the past, and reached a deal in March to cut its debt by $1.5bn and extend the date of some maturities in an attempt to conserve cash.
It has lost several executives in recent months, including chief executive Sandeep Mathrani, who led the firm’s turnaround, but quit in May to join a private equity firm. His permanent successor has not yet been appointed.
In addition, investors appear to have lost what little confidence they had in the company: its shares have fallen by 95% over the past year, giving it a market value of about $450m.
Steve Clayton, head of equity funds at broker Hargreaves Lansdown, said WeWork was “perhaps the most over-hyped start-up of recent years”.
He added: “With the group’s debts trading for cents on the dollar the market is clearly concerned about the value left in the business.”
Source: The Guardian