WeCrashed part two
The business news that matters
Hello everyone and welcome to the latest Off to Lunch…
WeWork has warned there is “substantial doubt” about its ability to continue as a going concern.
Shares in the company are set to fall by more than a quarter when trading begins in the US today after WeWork issued the warning in its second quarter results, which were published on Tuesday night.
WeWork provides office space, desks and meeting rooms to paying members in cities around the world. However, the company warned in its statement:
As a result of the company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the company’s ability to continue as a going concern. The company’s ability to continue as a going concern is contingent upon successful execution of management’s plan to improve liquidity and profitability over the next 12 months, which includes, without limitation:
Reducing rent and tenancy costs via restructuring actions and negotiation of more favourable lease terms;
Increasing revenue by reducing member churn and increasing new sales;
Controlling expenses and limiting capital expenditures; and
Seeking additional capital via issuance of debt or equity securities or asset sales.
WeWork’s second-quarter results showed a 4 per cent year-on-year rise in revenues to $844 million (£662 million) while net losses were reduced from $635 million to $398 million. However, WeWork warned there had been a 1 per cent drop in the number of members it has to 653,000 as working practices change and more competition emerges
David Tolley, the interim chief executive, added:
“Excess supply in commercial real estate, increasing competition in flexible space and macroeconomic volatility drove higher member churn and softer demand than we anticipated, resulting in a slight decline in memberships.”
Shares in WeWork are down 25 per cent in pre-market trading in New York. The company is now valued at just $450 million. In early 2019 it was valued at $47 billion.
This is how WeWork’s share price graph looks since it floated in 2021…
The warning from WeWork is the latest part of an extraordinary story. The company was founded in 2010 and achieved the $47 billion valuation in January 2019 after backing from Softbank, the Japanese company. That made it one of the most valuable start-ups in the world.
Adam Neumann, the co-founder of WeWork, claimed the company would revolutionise how we worked. However, Neumann was ousted by investors after WeWork was forced to scrap plans to float late in 2019 and details emerged about his extravagant spending. The rise and fall of Neumann was covered in the superb drama series WeCrashed, which is available on Apple TV+ here. The company eventually listed in 2021 with a reduced valuation of $9 billion.
The future of WeWork is significant for the commercial property market in the US, UK and other countries. The company has 777 locations across 39 countries and was the biggest occupier of office space in central London before recent cutbacks. It has signed leases for millions of square feet of office space. Cities around the world are already debating what to do with offices that have been left empty following the post-Covid increase in flexible working. There will be much more empty office space to deal with if WeWork fails…
You can find WeWork’s latest statement here and an analysis by Bloomberg here
Other stories that matter…
1. China has fallen into deflation after the consumer price index dropped by 0.3 per cent in July, according to official figures. This data is the latest example of the challenges facing the Chinese economy. We covered more about this in yesterday’s Off to Lunch here. In contrast to China, the consumer price index in the UK rose 7.9 per cent in June. Reuters story on the Chinese data here
2. Amazon is in talks to become a key investor in UK chip designer Arm as part of its forthcoming IPO. Bloomberg story here
3. Michael Gove’s ambitions to expand Cambridge into a new Silicon Valley for the UK with as many as 250,000 new homes by 2040 faces significant local opposition due to concerns around water supply, the poor transport infrastructure and where new homes will be built. That is according to an analysis by the Financial Times here. On a similar topic, The Economist has looked at how other parts of the UK are trying to benefit from the country’s flourishing life sciences sector and move on from the traditional industries that have powered their local economy. For example, Sir Ian Wood, the former boss of oil company Wood Group, is leading a new hub in Aberdeen to help start-ups grow. Opportunity North East is supporting businesses in life sciences and other industries. You can find the Economist piece here and more on Opportunity North East here
4. The newsletter start-up Puck has raised $10 million (£7.8 million) to expand after a funding round led by UK firm J Rothschild Capital Management. Puck says it covers “the inside story at the intersection of Wall Street, Washington, Silicon Valley and Hollywood“. Axios story here. In other funding news, Cornish Lithium has raised £53 million from a collection of investors, including the UK Infrastructure Bank, which has made its first equity investment. Cornish Lithium is working to develop mines in the south-west of England that could produce lithium, a key material for batteries in electric. BBC story here
5. In the latest news on artificial intelligence, Universal Music is in talks with Google about a deal to licence the use of artists’ voices by AI technology. Financial Times. story here. Meanwhile, John Lewis and Waitrose are to work with Google to develop a customer service chatbot. The retailers will also use Google’s cloud computing technology to manage their data as part of a £100 million, five-year deal. Statement here
6. Fascinating piece from Sifted on the Whatsapp groups filled with venture capital investors and tech founders that are helping to shape industries as well as share gossip and discuss life tips. Piece here
Podcast…
The new episode of Business Studies is live and features an interview with Claire Hughes Johnson about the lessons she learned from working at Google and Stripe as they went from promising tech upstarts to big businesses. Johnson worked at Google for ten years - running Gmail, its self-driving car business and holding a collection of other roles - before becoming chief operating officer at Stripe. You can listen to the episode on Substack here, Apple here or Spotify here
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Best
Graham