The "WeGrow" elementary and preschool in Manhattan will close at the end of the 2019-2020 school year, the company said Friday. It's WeWork's first publicly announced cost-cutting step since it scrapped plans last month for an initial public offering of stock. The company abandoned the IPO after it generated tepid interest from investors worried about WeWork's massive losses and corporate governance problems.
The stock-sale debacle posed an urgent funding problem for WeWork. It had hoped to raise $3 billion in the IPO, which would have unlocked $6 billion in financing raised by a group of banks to fund its aggressive growth strategy.
WeWork said the closure of the WeGrow school is part of its efforts to focus on its core office space leasing business, raising the possibility that it could shed more side businesses. Those include a fitness company called "Rise by We," the co-living rental company "WeLive" and several tech acquisitions, including social media network Meetup.
WeWork is also in talks with longtime financial backers about new financing. The New York company is burning through about $2.8 billion each year, according to an estimate by Sanford C. Bernstein analysts. At that rate, Bernstein projects WeWork could run out of cash to maintain its current plans by mid-next year. Bernstein estimates that WeWork needs at least at least $6 billion in funding.
As the end of June, WeWork was sitting on $2.5 billion in cash. It has $1.5 billion coming in next year under an earlier deal struck with SoftBank, the Japanese investment firm. The company's revenue has more than doubled annually over the last few years, reaching $1.8 billion in 2018, mostly through lease acquisitions. But its losses have mounted almost as quickly, reaching $1.6 billion last year.
WeWork was founded in 2010 and makes money by leasing buildings and dividing them into office spaces to sublet to members. It has locations in 111 cities worldwide and had planned to launch in 169 addition cities, plans that will likely now be pared down.
WeGrow is a for-profit private school that teaches elementary school-aged children and preschoolers starting at age 2. It had been run by Rebekah Neumann, wife of WeWork's co-founder Adam Neumann who last month stepped down as the company's CEO.
The school was part of the communal ethos that the Neumanns had promoted as the guiding principle of their company. The program includes yoga, meditation, trips to a Staten Island farm and mentorships with WeWork's members.