WeWork, the international co-working office space operator that has been gearing up for a huge IPO this month is reportedly mulling over cutting its proposed valuation in half. The company, which only launched in 2010 but is already the single largest occupier of prime office space in London and many other major international commercial hubs, had been targeting an IPO valuation as high as $47 billion.
But growing investor concern that the aggressive multiples ‘tech’ companies have recently IPO-ed at have become detached from reality has seen an avalanche of criticism aimed at WeWork’s target value in the run up to its issue. The company has attracted particularly close scrutiny because while it considers itself a ‘tech’ company, and has successfully raised investment privately at the same kind of valuations as tech companies, not all outside observers are so sure. WeWork insists that the software stack it has developed for the efficient running of its co-working office spaces is what is behind its success and runaway growth.
Critics of WeWork’s private valuations over the years, and its proposed IPO, say while it may be a nice software suite, it doesn’t change the fact that the company is, at heart, little more than a commercial property management operation. And its growth is far more down to it having successfully attracted huge sums of investment capital to fuel rapid expansion while racking up huge losses.
The run up to WeWork’s intended IPO date has come against the backdrop of several of the high profile technology IPOs of earlier in 2019 struggling to justify the valuations investors bought in at. Uber and Lyft have both flopped since their spring IPOs and both hit all-time lows this week. Slack, the professional messaging app that debuted in June, has lost around 20% of its value this week after posting its first quarterly results as a public company.
The feeling that fashionable start-ups backed heavily by private equity have recently been overvalued at IPO hasn’t helped calm the general concerns around the WeWork business model. It leases most of its buildings on long term contracts but offers flexible, short-term contracts to its tenants. This, property investors argue, leaves it very exposed to a market downturn. There are also corporate governance worries around the cosy business relationship between the company and its founder and CEO Adam Neumann, who has ownership interest in several office buildings leased to WeWork.
It is starting to look like WeWork will either have to postpone its IPO or reduce its valuation to closer to the $20 billion to $25 billion level, which would represent around half of the $47 billion mooted. The other option it is said is being mulled over is cancelling the IPO altogether and instead raising the capital through another private investment round – presumably led by Vision Fund, the company’s biggest investor.