WeWork Value: Where Financial Mismanagement Meets Governance Dysfunction

WeWork's financial mismanagement and governance dysfunction have led to a significant decline in its value. The company's net losses ballooned to $1.9 billion in 2019, largely due to its aggressive expansion strategy and failure to generate sufficient revenue.

WeWork's business model relies heavily on leasing large office spaces, which it then subleases to members. However, the company's inability to predict demand and manage its cash flow has resulted in a significant amount of unused space.

The company's governance structure has been criticized for its lack of transparency and accountability. Adam Neumann, WeWork's co-founder and former CEO, held a 49% stake in the company and had significant control over its operations, leading to concerns about conflicts of interest.

WeWork's valuation peaked at $47 billion in 2019, but it has since plummeted to $8 billion. The company's struggles have raised questions about the sustainability of its business model and the effectiveness of its leadership.

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WeWork's valuation has been a topic of much debate, and for good reason. WeWork is just one example of wild valuation in today's tech industry, reminiscent of the dot.com era of 2000.

WeWork's valuation has skyrocketed to $20B, making it the 6th most valuable startup in the world. This latest valuation ranks WeWork just above real estate incumbents Boston Properties and Vornado.

The company's valuation has continued to rise with each funding round, with WeWork first gaining unicorn status in Q1'14 with a $1.59B valuation. WeWork's valuation has more than quadrupled since then, with its most recent valuation exceeding Boston Properties' market cap of $17.8B by over 12%.

Boston Properties, which trades at a valuation around $18B, trails second to WeWork. The company's CEO Adam Neumann has stated that WeWork has 180 buildings globally for WeWork and 2 buildings for WeLive.

WeWork's financial mismanagement was a key factor in its downfall. The company tried to price itself like a software platform while spending like a distressed real estate investment trust (REIT). This mismatch between pricing and spending ultimately led to its demise.

WeWork's burn spiral was a major contributor to its financial woes. In 2018, the company lost $1.6 billion on $1.8 billion in revenue, which is not a growth story, but rather an incinerator. This kind of financial hemorrhage is unsustainable for any business.

The company's cash burn per dollar of revenue hovered above $0.90 from 2017 to 2019, with no customer acquisition cost (CAC) efficiency or customer lifetime value. This means that WeWork was relying on private capital to fuel its top-line growth, rather than generating sustainable revenue.

WeWork's financials were a disaster, with $47 billion in future lease liabilities and zero profits. The company's revenue per user stagnated at $6,320/year/user, and its margins were below industry comparables like IWG/Regus. This was a recipe for disaster, and it's no wonder that the company's valuation cratered from $47 billion to $8 billion in under 6 weeks.

Here are some key financial metrics that highlight WeWork's mismanagement:

WeWork's financial mismanagement was a clear warning sign that the company was not sustainable in the long term. Its failure to generate profits, combined with its unsustainable cash burn and high debt levels, made it a ticking time bomb waiting to implode.

Founder Adam Neumann's leadership style was marked by a lack of alignment between his actions and the company's interests. He sold over $700 million in personal stock before WeWork's IPO.

This kind of behavior is a red flag for governance dysfunction. It suggests that Neumann was prioritizing his own interests over the company's well-being.

Here are some specific examples of Neumann's questionable leadership decisions:

These actions, exposed in the S-1, painted a picture of unchecked ego rather than visionary leadership.

Adam Neumann's leadership at WeWork was a prime example of governance dysfunction. He sold over $700 million in personal stock before the IPO.

This kind of behavior is a red flag for investors and stakeholders. It shows a lack of alignment with the company's interests and a focus on personal gain.

WeWork's governance issues were further exacerbated by Neumann's trademarking of the word "We" and selling the rights to the company for $5.9 million.

This move was a clear conflict of interest and demonstrated Neumann's prioritization of his own interests over the company's.

Here are some key governance issues that led to WeWork's downfall:

These actions demonstrate a clear lack of oversight and accountability, which ultimately led to WeWork's demise.

We has attracted a roster of high-profile investors, including Goldman Sachs and JPMorgan, to fund its expansion.

Softbank, a Japanese technology conglomerate, has been instrumental in We's growth, investing $4.4 billion in 2017 and valuing the company at $20 billion.

The flow of money from Softbank has been pared back, with a $2 billion investment in January, well below the $16 billion WeWork was reportedly seeking.

We has received significant funding from Softbank, but it's not the only investor in the company.

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We can't help but wonder if We is truly a disruptor in the business world. The company's approach to serviced offices has certainly shaken up the market by marketing to a new audience.

Charles Clinton, co-founder and chief executive of EquityMultiple, believes that We has expanded the base that accesses these services dramatically, much like Apple has done with its innovative products. This expansion has made We a major player in the serviced office sector.

However, not all of We's ventures have been as successful. The company paid $13.8m for a 42% stake in Wavegarden, a Spanish firm that generates ideal conditions for surfers, but wrote down the value of its holding to zero a year later.

We's ability to make leftfield deals like this may be called into question once it has public investors to answer to. The company's practice of leasing buildings partially owned by its officers to WeWork has also raised eyebrows.

The Wall Street Journal reported that We paid more than $12m in rent to buildings partially owned by WeWork officers between 2016 and 2017.

WeWork was established in 2010, just as the financial crisis took the bottom out of the office rental market. It now has 425 locations in 100 cities.

The company has 401,000 members, who use its offices. WeWork's valuation has more to do with its size, energy, and spirituality than its revenues.

It has branched out into residential spaces with WeLive, where people can rent fully furnished apartments for a few nights or a number of months. WeGrow, its school for 2-11 year olds, is committed to unleashing every human's superpowers.

WeWork is a capital-intensive business to run, requiring a lot of money to invest in getting a lease on an office, doing up the office, and segmenting it into smaller sites. It burned through $2.3bn in cash last year.