WeWork was founded in 2010 under the revolutionary idea that promised to change the concept of the office with the creation of shared work spaces (coworking).
In fact, it became the startup with the highest market valuation in the US. By 2018, it managed an impressive total of 4.33 million square meters of co-working space.
WeWork raised over $13B to support its business expansion, steadily increasing the company’s valuation. Despite its presentation as a technology startup, in reality, its core operations were focused on the real estate sector. It spanned 777 locations in 39 countries.
Its initial public offering in October 2019 was hampered due to “market conditions,” which were marked by scandals and widespread losses. At that time, WeWork was still valued at USD 47 billion, in a maneuver orchestrated by SoftBank, a Japanese conglomerate that was its main investor and backer.
When did the problems accelerate? As a result of the coronavirus, when the remote work model began to become popular. This led to a lack of financial sustainability, as it had spent large sums of money to acquire properties and renovate work spaces without generating enough income to cover those costs.
In 2020 the company had lost USD 3.2 billion. Despite this, in 2021 the company went public thanks to SoftBank. This decision baffled many. However, some investors chose to go ahead with this operation.
WeWork shares were trading at around $10 each. After a 1-for-40 stock split, this translated to a value of around $400 per share in today’s terms. The shares subsequently experienced a sharp rise, above $500.
However, after the pandemic, many people chose not to return to offices or adopted hybrid work models. This negatively affected WeWork as the company struggled to recover.
What subsequently happened to WeWork shares is history. There was a fierce drop of practically 100% in 2 years. In fact, on Friday, November 3, the stock closed at $0.84.
On Monday, November 6, operations abruptly stopped, and WeWork announced its bankruptcy filing.
The company faced significant challenges that hampered its recovery efforts. Increasing competition in the coworking industry, higher interest rates, and global economic uncertainty negatively impacted their situation.
The bankruptcy filing will provide WeWork with a legal safeguard against its debtors as it embarks on the challenge of restructuring its enormous debt, which exceeds USD 15,000M. The company’s recent valuation in the markets shows that it is worth less than USD 50M, a tiny fraction compared to its glory days.
Although the bankruptcy will have repercussions on WeWork’s operations in the US and Canada, the company ensures that its activities will continue in other regions of the world, preserving its presence internationally.
WeWork is an example of how an inflated valuation and unsustainable growth strategy can lead to total destruction.
Plus, it’s another lesson for investors. One of the basic rules in investing is “don’t try to catch falling knives.” It means that you don’t have to buy what happens.
Simply because we do not know how long it can fall, and there is a risk of losing all the capital. And that’s what happened with WeWork. Therefore, we must be very careful with the stories that the financial world wants to sell us.
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Note: The material contained in this note should NOT be interpreted under any circumstances as investment advice or a recommendation to buy or sell a particular asset. This content is for educational purposes only and represents the opinion of the author only. In all cases it is advisable to seek advice from a professional before investing.
CEO of Carta Financiera
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