[News Inside Companies] WeWork Hit Hard by COVID-19

IPO Failure Raises 'Bankruptcy Risk' Amid COVID-19
Cash Reserves Fall to Less Than One-Third Compared to a Year Ago

WeWork logo. [Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunjung Lee] The predecessor of the shared office company WeWork is 'Green Desk.' Green Desk gained great popularity among companies trying to downsize their office space during the 2008 financial crisis. Within two years, it opened seven more branches. After selling Green Desk, founder Adam Neumann established WeWork in 2010. WeWork rents office space, subdivides it, and then subleases it as monthly shared office spaces. It also leases entire buildings.

It differentiated itself from other shared office companies through 'business sharing.' Transparent glass walls were installed so that one could see at a glance what other offices were working on. Additionally, free beer was provided, and spacious shared areas were created to allow people to converse in a comfortable atmosphere. Beyond simple space sharing, it aimed to form a 'business network' among users to enable collaboration with other companies and industries.

Within nine years of its founding, WeWork grew into the world's largest shared office company, operating over 500 branches in more than 120 cities worldwide. It was recognized as a 'unicorn company' (a privately held startup valued at over $1 billion) leading the sharing economy market alongside companies like Uber and Airbnb. At one point, its corporate value soared to $47 billion.

However, documents submitted while preparing for its IPO (Initial Public Offering) revealed to the public a massive deficit with net losses exceeding revenue. As the business expanded, the amount of physical assets to be leased increased, leading to higher costs. Ultimately, the subleasing business was criticized for neglecting the fundamentals of real estate business and focusing solely on external expansion at the expense of costs. This differs from other models where new businesses can be attempted without significant additional costs once the platform is established.

CEO risk was also an issue. The misdeeds of founder Adam Neumann began to surface. He took loans using WeWork stock as collateral to invest in other companies, profited by having WeWork lease buildings he owned, and complicated the governance structure to maintain the greatest influence over company operations. Following these events, the IPO was halted, and Neumann took responsibility for the failed listing and stepped down as CEO.

In October 2021, WeWork went public via a reverse merger with the special purpose acquisition company 'BowX' on the New York Stock Exchange. Nevertheless, facing the variable of COVID-19 and the spread of remote work, it has struggled, including laying off thousands of employees to reduce costs. Consequently, in March, Apple TV+ aired the drama 'WeCrashed,' starring Jared Leto and Anne Hathaway, depicting the rise and fall of WeWork.

As of the end of this year, WeWork is expected to hold about $300 million (approximately 390 billion KRW) in cash reserves, less than one-third of its cash holdings a year ago. This is why 'default risk' is being discussed.

Meanwhile, WeWork entered the Korean market in August 2016. WeWork Korea's sales grew about 20% compared to pre-pandemic 2019, recording 92.4 billion KRW in 2020 and 99.7 billion KRW in 2021. Currently, a total of 19 branches operate, including 17 in Seoul and 2 in Busan.