Just 18 months after its peak valuation of $47 billion, WeWork has seen a drastic drop to just $1 billion. The reasons for this massive devaluation range from lack of profitable growth to ineffective management.
WeWork, started by Adam Neumann, provides co-working spaces, both physical and virtual ones, a unique prospect that ended up having a nightmare. In this article, we explore the key factors that led to WeWork’s dramatic decrease in worth.
The Rise and Fall of WeWork’s IPO
After a cancelled IPO in late 2019, WeWork was eventually able to make its long-awaited public debut on the New York Stock Exchange in December 2019. Despite much fanfare and hype surrounding the release, within just months of the listing, the company’s share price cratered by over 80%. With its valuation tumbling from $47 billion prior to listing to just $1 billion shortly after, this massive drop offers valuable lessons into how quickly investor sentiment can turn and speaks volumes as to why cold-hearted facts mustn’t be overlooked in assessing potential investments.
Increasing Financial Struggles
WeWork‘s financial situation had been worsening long before the company went public. Struggling to turn a sustainable profit, the company was forced to take on hefty amounts of debt in order to finance its ambitious expansion plans. Additionally, after its abortive attempt at going public, it became increasingly clear that the company’s repeated losses and doubtful outlook meant that much larger investments were needed if it hoped to survive as a publicly traded entity.
Leadership Crisis in WeWork’s Management Team
One of the main factors leading to the company’s drastic drop in valuation was the leadership crisis within their management team. Questions were raised over whether co-founder and ex-CEO Adam Neumann had used his position of power to gain personal financial advantage, particularly concerning his past corporate governance issues. The influx of new leadership failed to quell growing investor concerns, leading many to abandon their positions in the company and drastically reduce its valuation.
Lack of Confidence from Investors and Changing Investment Strategies
The waning trust of investors in WeWork‘s leadership highlighted the urgent need for a change in their corporate strategy. Investors, who had initially been confident that the company could turn its seeming potential into success, began to retrench and reassess their positions in the rapidly changing market conditions. This decrease in confidence was further compounded by shifting investor investment approaches, causing many to reduce or liquidate their investments in WeWork altogether.
In a reflection of this quickly deflating confidence, SoftBank, WeWork’s largest investor, has written down its shares in the company to approximately $1 billion from their previous valuation of around $10 billion. Many investors have followed suit and adjusted their share values or axed investments entirely, reflectingWeWork’s severe lack of financial security. This decreased trust in WeWork’s operations highlights the need for the company to change both its corporate strategy and executive leadership, doing whatever it takes to bring back investors’ much-needed confidence.
Unanswered Questions About Corporate Governance Structures and Business Model Changes
The implosion of WeWork underscored the importance of carefully reviewing corporate governance structures in order to identify potential problems and areas of risk. Investors began asking some hard questions about how the company was managing its business model changes and how that might impact their investments going forward. As many started to reassess the viability of WeWork’s rapidly expanding business, these same unanswered questions contributed greatly to a drastic decrease in investor confidence.
