WeWork Planning to File for Bankruptcy Next Week, WE Shares Decline by Around 50%

After all the challenges WeWork has faced, the news about its going bankrupt does not seem surprising. The company did not comment on the announcement yet.

New York-based provider of coworking spaces WeWork Inc (NYSE: WE) is reportedly planning to file for bankruptcy next week as a result of the financial challenges it can not overcome. The company had a long-term debt of as much as $2.9 billion as of the end of June, with more than $13 billion tied up in long-term leases.

Following the news, WeWork stock dropped by 46.49% to close the session at $1.22 yesterday, which is a record low. In the after-hours trade, WE shares further plunged. As of the press moment, the stock is standing at $1.24. The company whose value once totalled $47 billion has a market cap of $121.42 million only.

WeWork’s Challenges

WeWork has been struggling since 2019 when its plans to launch an initial public offering (IPO) didn’t work because of doubts among investors about the company’s business model which involved securing extended leases and subletting on a short-term basis. Following the failure, WeWork CEO and cofounder Adam Neumann stepped down from his role in September 2019. Next month, WeWork’s biggest investor SoftBank Group Corp (TYO: 9984) took over the company. It invested as much as $18.5 billion in WeWork, but after the takeover, the latter’s valuation dropped to $5 billion. Notably, at that time, SoftBank also had to deal with the US Securities and Exchange Commission (SEC) which was scrutinizing WeWork over its disclosures to investors in the run-up to its failed IPO.

With the change of leadership, the company cut down its spending to a more manageable amount. New management sought after streams of revenue that made sense with their overall business model. They added business solutions to help companies with resources and payroll. In November 2019, WeWork also laid off as many as 2,400 employees. Besides, WeWork sold off businesses including Flatiron School, Teem, and its share of The Wing.

In 2020, the pandemic hit the world. However, it did not kill WeWork as many expected. The company made a number of critical changes that helped it hold on while facing a pandemic that kept people home and away from offices. In the first half of 2020, it managed to generate $1.1 billion in revenue.

In October 2021, WeWork finally went public through a special purpose acquisition company (SPAC) after more than two years of struggling with an IPO. The debut provided WeWork with gross cash proceeds of approximately $1.3 billion and valued the company at around $9 billion.

The IPO was not as profitable as expected, and SoftBank’s contributions to WeWork’s future did not pay off as expected. In 2022, WeWork reported a loss of nearly $2.3 billion. In November 2022, WeWork revealed its plans to close 40 underperforming shared office locations in the US that totaled about 41,000 workstations.

In August this year, WeWork warned of possible bankruptcy. The company explained:

“Our losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern.”

After all the challenges WeWork has faced, the news about its going bankrupt does not seem surprising. The company did not comment on the announcement yet.

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