We work’s life hangs in the balance


Source: Beijing Business Daily
Original title: the life of Wework is in danger once the valuation falls again
There has been more and more bad news about Wework recently. From the beginning of giving up IPO, Wework seems to have entered a period of water reverse. Whether Goldman Sachs’s write down of its equity, or rumors of layoffs and rescue, all seem to confirm Wework’s recent difficulties from the side. When the bubble of shared economy begins to crumble, WeWork has not yet been able to get out of the endless whirlpool of burning money. It is natural for a round of doubts to be challenged. After all, the patience of investors is limited.
I didn’t expect that the financial statements of Goldman Sachs revealed the situation of Wework. On the 14th of local time, before the U.S. stock market, Goldman Sachs released its financial report for the third quarter of 2019. In a conference call after the financial report, Stephen Scherr, the CFO of Goldman Sachs, confirmed that Goldman Sachs had written down its equity in Wework by $80 million, lower than the previous expectation of the company.
This triggered speculation. Some analysts said that Damo was based on the estimate that Jefferies, an investment bank, announced a write down of its stake in Wework last month, worth $146 million. Some people familiar with the matter said that Goldman Sachs had quietly sold part of its stake in the previous two rounds of private financing of Wework. Stephen Scherr admitted that Wework’s valuation fell sharply after the failure of its IPO plan last month, forcing Goldman to revalue its stake.
However, Stephen Scherr is still optimistic about the investment of Wework, saying that the book value of Goldman Sachs’ stake in Wework is about $70 million at present, but this is also much higher than the original cost of equity, “even if the company’s valuation further declines, Goldman Sachs can still profit from this investment.”
As Goldman Sachs puts it, Wework’s valuation is not optimistic. It is reported that Wework’s recent stock trading in the private over-the-counter (OTC) market has almost come to a standstill. According to one investor active in the private equity market, Wework composite shares are currently trading at $20 or less per share. Based on 338.4 million shares issued, this means that Wework is valued at about $7 billion, compared with $47 billion when Softbank group last invested in Wework through vision fund.
“We see that people are not interested in Wework’s transactions in the secondary market. Our understanding is that on the whole, the stock trading volume of this company is very small, or even not at all. ” Jane Leung, chief investment officer of scene advisory, a boutique investment bank specializing in private equity, said that after Wework announced its IPO plan in August, its stock trading in the private market had slowed down, especially after the IPO was clearly in trouble.
Wall Street is also very worried. On Tuesday, Fitch, a global credit rating agency, downgraded Wework’s credit rating by two levels to “CCC +”. Standard & Poor’s, another rating agency, earlier downgraded Wework from “B” to “B -“. “CCC +” and “B -” are junk bond ratings, indicating higher risk.
In addition to stocks, the bond price of Wework also hit an intraday low on May 14, among which the price of junk bonds maturing in May 2025 with a coupon rate of 7.875% fell to a historical low of 78 cents, and the yield rose to 13%, indicating that investors are increasingly worried about Wework’s inability to pay its debts. According to the previous prospectus released by Wework, in the first half of this year, Wework’s revenue was US $1.5 billion, up 100.91% year on year. The corresponding losses are also expanding. In the first half of this year, Wework lost $900 million, an increase of 25% year on year. Since 2016, Wework has accumulated a loss of more than $4 billion.
Questions about “burning money” and funding difficulties have begun to have an impact on Wework’s business. According to the guardian, the beleaguered Wework is expected to cut at least 2000 jobs as soon as this week, or 13% of its current workforce. According to one employee, at present, the company is preparing for layoffs. New projects have been put on hold and there is almost no work to do. However, the specific time for layoffs has not been determined, because the more important thing is to discuss how to raise enough funds before the cash runs out next year.
At present, Wework’s new projects in New York and London are almost stagnant. The company’s $850m acquisition of Lord & Taylor’s department store on Fifth Avenue in Manhattan is in trouble. Two large landlords in London have leased about 3.7 million square feet of land to Wework since 2014, but recently said they would not sign new lease contracts with Wework in the foreseeable future.
All the posts are blocked by the unicorn’s development. At present, Wework has not issued a statement on any negative news. The reporter of Beijing business daily asked Wework China Media Contact Center for confirmation on the authenticity of layoffs and funding issues, but no specific reply was received by the time of publication. The good news, though, is that Softbank and JPMorgan Chase, Wework’s largest external shareholders, seem to be working on plans to raise money to save Wework.
Beijing Business Daily reporter Tao Feng Tang Yitian