WeWork Mulls IPO Valuation, Revamps Corporate Governance
Does WeWork’s moves to woo investors just weeks before its initial public offering come a little too late?
Have the moves to woo investors just weeks before its initial public offering on the Nasdaq Stock Exchange come a little too late? Some skeptics say so.
In the latest news development, sources close to the matter said it is considering a valuation between $10 and $12 billion for its initial public offering, a wide gap from the $47 billion valuation it boasted nine months ago on the private markets. Skeptics find the dip reveals a façade many start-ups present to investors about potential cash flows.
“It’s all fun and games until the grown-ups come home,” Clelia Warburg Peters, president of Warburg Realty and proptech expert and investor, tells GlobeSt.com. “We forget these valuations aren’t just numbers on a paper. They make a difference in shareholder value.”
Out of sync private and public market valuations have brought the weight of these estimates to the foreground, along with skepticism of WeWork CEO Adam Neumann. Without a doubt, Neumann successfully innovated the notion of co-working post the 2008 financial crisis, however, he has demonstrated hubris in his reluctance to cede an abnormal amount of company voting power, and to a fault with prospective investors.
Dispelling the key man risk inherent with Neumann’s majority control of the New York City-based company is and remains a focal point because generating cash from this month’s IPO is crucial to sustaining its operations.
The company relies on a mix of long-term liabilities and short-term revenue. The cash-burning company has reported net losses for the past five years, recent losses include $1.6 billion in 2018 and $689.7 million in the first half of 2019, according to an S-1 filing.
“There is no mote around WeWork, and it hasn’t tipped into profitability,” Ted Bauman, a senior research analyst and economist at Banyan Hill Publishing, tells GlobeSt.com. “What is the underlining to make the company sustainable and impervious to competition?”
The We Co., backed by Japan’s SoftBank Group Corp., said in a regulatory filing that it will decrease Neumann’s voting shares from 20 votes a share to 10 votes a share, still maintaining majority control but not as dominant.
Also, Neumann will share any profits from real estate deals involving the We Co. and will limit his ability to sell shares no more than 10% of his stock two to three years after the IPO.
Also scrapped from the governance structure; Neumann’s wife Rebekah Neumann, chief brand and impact officer, will not select the company’s successor or serve on the company’s board. No member of Neumann’s family will retain those rights. Early September, the company added a Harvard Business School professor Frances Frei to its all-male board and announced the return of a $5.9 million payment for the trademarked “We.”
Despite the negative market chatter, there is a silver lining with the company’s recent moves.
Fitch Ratings recently released a report spelling out progress for WeWork amid its shift in direction, bringing its credit rating to a B from a BB- and with a stable outlook from its once perceived instability.
“WeWork is now committed to having a board with majority independent directors. This will provide an important check on capital allocation, financing, and growth strategy decision,” said Kevin McNeil, director at Fitch, in a statement.