WeWork could file for bankruptcy as early as next week, according to Reuters and the Wall Street Journal. Frankly, we are not surprised at this result for the former venture darling.
WeWork’s shares were down 49.7% in early morning trading on Wednesday, bringing its market capitalization to just $61 million. That’s a ludicrous drop considering this company raised more than $7.09 billion in equity capital while private.
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In August, the company expressed doubts about its ability to continue as a going concern, which is business-speak for “the wheels are coming off this damn car and it’s not looking good.” And in October, WeWork paused certain debt payments and later negotiated a little more time for itself.
Last month, WeWork missed interest payments to its bondholders and was granted 30 days to make them, according to a securities filing. Then this Monday, the company said it had begun discussions with “certain stakeholders in its capital structure” such as SoftBank and Goldman Sachs about improving its balance sheet as it took steps “to rationalize its real estate footprint.”
The going concern warning and the moves to retool its indebtedness are clear indications that things are not going well at WeWork.
Let’s take a quick dive into the current state of WeWork’s finances, leaning on data through the end of Q2 2023. The data still tells a very simple story. Walk with me:
- WeWork’s revenue was rising as of Q2 2023: The company reported revenue of $844 million in the quarter, up from $815 million a year ago.
- It was also losing less money: Its Q2 2023 net loss of $397 million was far narrower than the $635 million loss it reported in Q2 2022.
- Sadly, it was still unprofitable: The company’s Q2 2023 adjusted EBITDA result came to a loss of $36 million, though that was an improvement from the $134 million adjusted EBITDA loss it reported last year.
- Even worse, the company was still burning cash: In Q1 2023, WeWork reported an operating cash-flow deficit of $284 million and an investing cash-flow deficit of $61 million. By the end of Q2 2023, those figures had swollen to deficits of $530 million and $121 million, respectively.
- Its cash balances are dwindling: By the end of the first quarter, WeWork’s “cash, cash equivalents and restricted cash, including cash held for sale” was down to $306 million. By the end of the second quarter, the company had $239 million (positive financing cash flow closes the gap between cash used for operating and investing activities and the company’s cash balance).
- It has huge debts: By the end of June, WeWork’s long-term lease obligations and long-term debts were worth more than $16 billion.
All that tells a story of sticky losses, cash burn, declining cash balances, and massive debts. And given the company’s performance in the past few quarters, what did you think was going to happen?
Show me the person who thought that demand for WeWork’s offerings would improve so rapidly that it would be able to fund itself. Show me who expected an influx of enough cash to ensure the company had plenty of operating room. Show me someone who wanted to put more money into a company that was worth a fraction of the capital it originally raised.
A lot of folks tried to make WeWork happen after its founder and CEO left the company. I don’t want to be rude to the people who tried to clean up the mess because I presume that they tried very hard. But WeWork was a low-margin business (at best) that suffered from a big mismatch between what it sold (short-term leases) and what it had bought (long-term leases). The company was overlevered, overextended and poorly managed during its heyday, and there simply wasn’t enough time or space to pull it out of its dive.
Now we’re simply counting down until the bankruptcy docs drop. Then we’ll be able to stick a fork in what will likely remain the high-water mark of the last venture boom’s silly season.
Unsurprisingly, real tech startups are doing much better.