[News Inside Companies] Japan's SoftBank 12 Trillion Won Loss... Investment Failure 'WeWork'

Japan's SoftBank Group, led by Chairman Masayoshi Son, recorded a net loss of 1.4087 trillion yen (approximately 12.2355 trillion won) in just the first half of this fiscal year (April to September), largely due to investment losses related to WeWork. The company alone suffered a loss of 234.3 billion yen from WeWork, which recently filed for bankruptcy protection.

WeWork Bankruptcy Crisis_Sketch of Korea Branch Yeouido Branch. Photo by Hyunmin Kim kimhyun81@

Founded in the United States in 2010, WeWork is a company that leases real estate on a long-term basis and then subleases the space on a short-term basis to startups and freelancers who need it. By adding the concept of the sharing economy to the real estate leasing business, it was regarded as a global icon of the sharing economy alongside ride-sharing service Uber and accommodation-sharing service Airbnb. WeWork also positioned itself as an information technology (IT) company that analyzes and reprocesses various data collected from its tenants.

After its founding, WeWork quickly established its image as an icon of the sharing economy and an IT company, attracting massive investments. A famous anecdote is when SoftBank Chairman Masayoshi Son toured WeWork's New York headquarters for 12 minutes at the end of 2016 and then wrote a check for $4.4 billion. Thanks to this, the company's valuation reached $47 billion in January 2019, just before its initial public offering (IPO).

However, the reputation did not last long. When WeWork pursued its IPO in 2019 and released its prospectus, it clearly revealed the vulnerabilities in its business structure. The company's valuation reported at that time was about $10 billion, only about one-fifth of the $47 billion valuation announced earlier that January. Unlike tech companies that increase profits as they grow, WeWork's costs for real estate leases increased as the business expanded. It became clear that the business structure was vulnerable to real estate market volatility and that the small margin between rent and operating costs made it difficult to generate profits. Following the release of this prospectus, investors' concerns about corporate governance, valuation, and business outlook grew, leading WeWork to postpone its IPO.

The unethical behavior of founder Adam Neumann, who purchased a private jet and leased his own real estate to WeWork for profit, also negatively impacted corporate management.

Meanwhile, WeWork faced a management crisis as vacancy rates soared due to the COVID-19 pandemic, which boosted remote work and reduced startup formations. After SoftBank Vision Fund acquired an 80% stake in WeWork for $10 billion in October 2019 to rescue the company, WeWork was listed on the New York Stock Exchange in October 2021 through a merger with the special purpose acquisition company (SPAC) BowX. However, as of April 18, it endured the humiliation of its stock price falling below $1 for 30 consecutive trading days. Subsequently, WeWork filed for delisting with the U.S. Securities and Exchange Commission (SEC) on August 22 and filed for bankruptcy protection with the U.S. Bankruptcy Court in New Jersey on the 7th (local time).