The We Company dropped plans to begin a so-called road show this week to market its shares for an initial public offering that had been widely expected this month. The company said it still plans to launch its IPO by the end of the year, but it was unclear what steps the company might take in the months ahead to dispel concerns that led to the delay.
"The We Company is looking forward to our upcoming IPO, which we expect to be completed by the end of the year," the company said in a brief statement. "We want to thank all of our employees, members and partners for their ongoing commitment."
Already, the We Company had announced sweeping corporate governance changes intended to address conflict of interest and commitment concerns surrounding CEO Adam Neumann. And it had been considering pricing its shares in the IPO at a valuation of less than half the estimated $47 billion that private investors have assigned to it.
The delay was striking in a year marked by healthy investor appetite for IPOs. WeWork had filed confidentially for an IPO in December of 2018 and gave investors a detailed look at its finances in a public regulatory filing last month. Last week, it announced plans to list its shares on the Nasdaq.
"It's a big deal," said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds. "If the market for IPOs were really bad, then maybe it wouldn't be, but the IPO market is in fairly good health."
However, Smith said investors in public markets have gotten more cautious about big companies that are growing quickly but also bleeding losses. The ride-hailing companies Uber and Lyft came to the market earlier this year with large losses, for example, and both are still trading well below their IPO prices.
Only a couple weeks ago, Smith was forecasting this year could be the biggest for IPO proceeds since 2014. WeWork's delay may curtail the total, but Smith said demand is still healthy for IPOs of companies that are profitable or at least show a realistic path toward it.
Skepticism about the sustainability of WeWork's business model has deepened since the company publicly provided its most detailed look to date at its finances. The company's revenue has more than doubled annually over the last few years, reaching $1.8 billion in 2018. But its losses have mounted almost as quickly, reaching $1.6 billion last year.
WeWork makes money by leasing buildings and dividing them into office spaces to sublet to members, who use an app to book ready-made offices or desks and get access to front-desk service, trendy lounges, conference rooms, free coffee and other services.
Founded as a co-working space in Manhattan in 2010, WeWork now has 527,000 members in 111 cities around the world, nearly double the number of members it had last year. The brand appeals to small businesses, start-ups and freelancers who can't afford permanent office space. And a growing part of its customer base includes larger corporations looking for cost-efficient ways to enter new markets.
With location operating expenses — mostly rent — amounting to some 80% of revenue, WeWork has been heavily reliant on cash infusions from its private investors, particularly the Japanese conglomerate SoftBank, which valued the company at a $47 billion in a January round of funding.
At stake for WeWork is a deal that would give it access to $6 billion in financing raised by a group of banks as long as it raises at least $3 billion in the IPO. "They need this IPO otherwise they need to go back to the Softbanks of the world and say we need another infusion or open up another line of credit. Otherwise, they are going to be in trouble," said Dan Morgan, senior portfolio manager for Synovus Trust.
Also looming over WeWork are concerns about Neumann, who created a stir by using some of his WeWork stock to secure a $500 million personal loan, and selling some of his shares. He has raised conflict of interest concerns because he owns four buildings that WeWork leases. And a backlash prompted Neumann to return $6 million that We Company paid for the trademark "We."
In an attempt to reassure investors, WeWork said last week it plans to appoint two directors, including a lead independent board member, within the next year and that no member of Neumann's family will sit on the board. The company also said its full board will have the power to remove Neumann as CEO and appoint a successor. Further, it would re-organize its shares in a way that would reduce Neumann's voting power, though he would still control a majority of its outstanding voting power.
Smith said WeWork will likely need to take at least a couple months to rework its pitch and show a clearer path to profitability. That's what will matter most to investors, more than the changes to address other concerns about corporate governance.
"We hold our noses with many companies if they show us they can perform and they're doing a good job," Smith said.
Associated Press Writer Michelle Chapman contributed to this story.