Wework’s parent company is considering dramatically slashing the valuation it will seek when it sells shares on the public stock market for the first time.
New York-based the We Company is deliberating seeking a valuation of just over $20bn (£16.2bn), people with knowledge of the matter told Reuters today, less than half the $47bn price tag it received in private fundraising in January.
The possible lower valuation reflects nerves among potential investors that the office-sharing start-up could never turn a profit, despite having rapidly expanded to more than 425 locations in 100 cities in just 10 years.
The We Company lost more than $900m in the first half, it revealed in a filing last month, despite its revenue climbing to $1.54 billion.
“There is an awful lot of blue sky in Wework’s valuation that it will need to fill in the coming years with real returns such as profit and cash flow,” said Fraser Thorne, chief executive of investment research group Edison.
Wework is understood to want to raise between $2bn and $4bn in a listing before the end of the year. It has strong backing from Japan’s Softbank, which has invested over $10bn since 2017.
But one of its problems in investors’ eyes is that it rents out its properties to clients on a short-term basis but pays long-term rent contracts, leaving them exposed if clients dry up.
There are also worries about the grip that founder and chief executive Adam Neumann has on the We Company. A multi-class share structure would give him operational control even after it went public, pre-listing documents have shown.
The We Company has also faced criticism for its all-male board of directors. Yesterday the company said it will add a woman to its board “upon the completion of this offering”.
Underwhelming flotations from other so-called unicorns – private start-ups valued at over $1bn – are also hanging over Wework’s plans to offer its shares.
Thorne said: “The real challenge for Wework is whether it will be able to meet market expectations as a listed entity with all the extra scrutiny that will bring.”