[News Inside Companies] The Shared Economy Legend WeWork, Reasons Behind Its Bankruptcy Threat

From a Corporate Value of 52 Trillion to Penny Stock Overnight
Shaken by a Cold Wave and Intensified Competition in the Commercial Real Estate Market
Attempted Recovery After a Failed IPO but Ultimately Collapsed

The global shared office service provider WeWork, once hailed as the "myth of the sharing economy," is now facing a de facto bankruptcy crisis. WeWork, which once boasted a corporate value exceeding $40 billion (approximately 52.6 trillion KRW), has been driven into a cash liquidity crisis as the commercial real estate market environment deteriorated and competition intensified following the COVID-19 pandemic.

[Image source=AFP Yonhap News]

◆ WeWork Directly Admits "Significant Doubt About Business Continuity"

According to Bloomberg and other sources on the 8th (local time), WeWork stated in a filing submitted to the U.S. Securities and Exchange Commission (SEC) that "net losses from operating activities and negative cash flows raise 'substantial doubt' about our ability to continue as a going concern."

The company added, "If we fail to improve our liquidity position and profitability, we may need to consider all strategic alternatives, including refinancing or restructuring debt, seeking additional debt or equity, downsizing or delaying business activities, asset sales, or relief under U.S. bankruptcy laws."

Following the disclosure, WeWork's stock price plunged about 25% in after-hours trading to 16 cents (approximately 210 KRW). Since its listing on the New York Stock Exchange (NYSE) in 2020, WeWork's stock price soared to $13 in October 2021 but fell below $1 in March this year, closing at 21 cents in regular trading on the day. Compared to the listing price, the stock has dropped more than 95%.

The decline in WeWork's stock price stems from its financial performance. The company recorded a net loss of $2.3 billion last year alone, and a net loss of $700 million in the first half of this year. Since SoftBank's initial investment at the end of 2017, the total net loss incurred by WeWork has been estimated at $15 billion. Foreign media reported that SoftBank suffered a $10 billion investment loss as a result.

A view of a WeWork shared office in Atlanta, Georgia, USA (Photo by WeWork website)

As a result, WeWork's corporate value, once estimated to exceed $40 billion in 2018, has drastically shrunk to a market capitalization of $450 million as of this date.

David Tolley, WeWork's interim CEO, explained that the commercial real estate market has experienced oversupply due to a sudden drop in demand after the pandemic, and intensified market competition over flexible workspaces has led to higher-than-expected member attrition. He also cited macroeconomic volatility such as high inflation and consequent interest rate hikes as contributing factors.

◆ The Fall of the 'Unicorn' WeWork... Business Recovery Fails Despite Successful Listing

WeWork's recent confession did not come suddenly. Having gone through years of turmoil, WeWork has staggered multiple times. Earlier this year, as the stock price hovered near the bottom, WeWork issued a press release in April stating concerns about delisting from the NYSE due to its stock price remaining below $1 per share for 30 consecutive trading days. What happened to WeWork, which had rapidly grown to spark a global sharing economy boom?

WeWork was co-founded in 2010 by Israeli entrepreneur Adam Neumann and American designer Miguel McKelvey as a company renting office space through shared offices. Early in its business, the company attracted investors' attention as a myth of the sharing economy. As a unicorn company, it thrived and was valued at $47 billion in 2019. At that time, WeWork was also the largest office space owner in Manhattan, New York.

However, in 2019, when WeWork was on a successful path, it faced a major crisis. Neumann ambitiously pursued an initial public offering (IPO), but accounting issues, excessive spending, and overvaluation controversies led to the collapse of the listing plan. This triggered Neumann's departure from the company. SoftBank, WeWork's largest shareholder, injected $10 billion as a bailout and implemented large-scale layoffs to restructure the business.

After a difficult recovery, WeWork eventually went public indirectly in 2021 by merging with a Special Purpose Acquisition Company (SPAC), which was popular at the time. There was optimism immediately after the listing that WeWork's business would recover as remote work gradually declined following the COVID-19 pandemic.

However, the impact of remote work persisted, especially in the U.S., where WeWork is based. The expansion of flexible work sharply froze the U.S. commercial real estate market. Additionally, macroeconomic factors such as interest rate hikes dealt a blow. Given WeWork's business model of leasing buildings and subleasing them to startups and freelancers, the relatively long-term lease contracts meant high rental costs, while demand for shared offices declined due to flexible work, inevitably hurting profitability.

The New York Times (NYT) expressed concern, stating, "If WeWork ultimately goes bankrupt and stops paying building rents, the turmoil in the commercial real estate market will worsen, causing significant pain to landlords in New York and San Francisco."

Currently, WeWork operates 610 locations in 33 countries, including the U.S. and South Korea, with 512,000 members. The number of members decreased by 3% year-over-year, and office space occupancy fell by 1 percentage point to 72% during the same period.

In its filing, WeWork stated it plans to improve cash liquidity and profitability through cost reductions via restructuring and renegotiation of lease terms, as well as expanding profitability by reducing member attrition. It also added that it will raise additional funds through borrowing, issuing new shares, or asset sales.