By Abhijith Ganapavaram and Shivansh Tiwary
(Reuters) -WeWork warned of a possible bankruptcy in a stunning reversal of fortune for the shared workspace provider that four years ago was one of the world’s most prized startups with a valuation of $47 billion.
The SoftBank-backed company, valued at just $446.8 million as of last close, has been in turmoil ever since it filed its IPO paperwork in 2019 as investors pointed out governance issues involving its then founder-CEO Adam Neumann.
The company went public in 2021 through a SPAC merger after abandoning its IPO plans, but the struggles continued as investors doubted its business model and clients moved to hybrid work since the pandemic.
WeWork’s business model involves taking long-term leases and renting out spaces for a short term.
“Fewer and fewer companies from mature large-cap businesses to startups are willing to enter into long-term leases for geographically fixed spaces,” Interim CEO David Tolley said in an investor call on Wednesday.
The company may need to consider strategic options, including raising more money or obtaining relief under the U.S. Bankruptcy Code, it said on Tuesday.
In March, WeWork had reached a deal to cut debt by about $1.5 billion and extend the date of some maturities to save cash.
The company is yet to turn a profit and has been cited as an example of over-inflated valuations commanded by technology firms that are backed by Silicon Valley investors.
“WeWork was perhaps the most overhyped startup of recent years,” said Steve Clayton, head of equity funds at Hargreaves Lansdown.
The company shuttered offices and cut jobs in a turnaround attempt but the departure of its CEO and CFO earlier this year has complicated the efforts. The search for a new CEO is on, WeWork said on Tuesday.
Its stock plunged as much as 35% to a record low of 13 cents in early trade on Wednesday, after it said three board members would step down.
Cost cuts, however, helped it report a smaller net loss of $349 million in the second quarter from $577 million a year ago.
But it burnt $646 million in cash in the first six months of 2023 and had $205 million in hand as of June end.
WeWork said it was planning to shore up liquidity by cutting rent and tenancy costs, controlling expenses and reducing member churn.
(Reporting by Ananta Agarwal, Chavi Mehta, Shivansh Tiwary, Abhijith Ganapavaram, additional reporting by Amruta Khandekar in Bengaluru; Editing by Anil D’Silva, Sriraj Kalluvila and Arun Koyyur)