Two years after WeWork’s attempt to become a public company flamed out spectacularly, the co-working giant will start trading on the stock market on Thursday, hoping that investors will now believe in its prospects.
The earlier effort collided with concerns about WeWork’s breakneck growth, its huge losses and the alarming management style of its co-founder Adam Neumann. WeWork has new leaders who have pared back its expenses and hope to exploit an office space market that has been upended by the pandemic. But the company still has lofty growth targets, big losses and many empty desks in its 762 locations around the world.
“We are the right company, at the right time,” Sandeep Mathrani, WeWork’s chief executive, told investors this month. “I joined this company with an upside-down cost structure. Over the past 20 months, we have focused on streamlining our operating expenses and right-sizing our real estate portfolio.”
Instead of an initial public offering, WeWork is entering the public markets by merging with a special-purpose acquisition company, or SPAC, something of a craze these days, and will trade under the ticker WE. It is expected to raise as much as $1.3 billion from the deal, a sum that includes stakes held by the investment firms BlackRock and Fidelity. Ahead of Thursday’s listing, WeWork said it was worth nearly $8 billion, a fraction of the $47 billion valuation placed on the company before investors soured on it in 2019.
WeWork leases office space and charges membership fees to customers — including freelancers, start-ups and small and large businesses — to use it. Its business rests on the belief that people might prefer the flexibility of such an arrangement over a traditional office lease, which can last for years and have other burdensome conditions.
Though flexible office space was not new, WeWork said its business could not only revolutionize how people worked, but also change how people lived and thought. Mr. Neumann attracted billions of dollars in investments, with the biggest coming from SoftBank, the Japanese conglomerate that ended up bailing out WeWork when it withdrew the 2019 I.P.O. and was in danger of bankruptcy.
Investors in WeWork must judge whether SoftBank will use any increase in the stock price to sell some of its 61 percent stake.
SoftBank may be eager to recoup the $16 billion it has sunk into WeWork, a sum that combines nearly $11 billion of equity investments, $5 billion of debt financing and payments to Mr. Neumann.
“I made a wrong decision,” Masayoshi Son, SoftBank’s chief executive, said last year. “I didn’t look at WeWork right.” SoftBank has agreed to cap its voting power in the company below 50 percent.
The pandemic, which emptied office towers around the world, also crushed WeWork’s business.
Traditional landlords survived because tenants were legally obliged to keep paying their yearslong leases, most of which remain in effect. But WeWork’s customers were able to cancel their much shorter-term agreements as they expired. WeWork’s revenue in the second quarter of this year was $593 million, well below the $988 million in revenue it reported for the first quarter of 2020, its peak quarter.
And this partly explains why the company is using up cash rather than generating it. In the first half of this year, WeWork consumed $1.31 billion of cash running its operations and purchasing property and equipment, more than the $1.15 billion in the same period of 2020.
Still, WeWork has made strides in cutting its operating expenses. Some of the biggest savings come from renegotiating leases with landlords or getting out of them. “We have exited over 150 full leases and executed 350 lease amendments year to date,” Mr. Mathrani told investors this month. “This has contributed to a significant decrease in our rent and tenancy costs, a savings of about $400 million annually.”
Perhaps the biggest question hanging over WeWork is whether it will suffer in the downturn that is pounding some of the biggest office space markets or find an opening in a work world reshaped by the pandemic.
Occupancy levels in office towers in cities like New York, Chicago and San Francisco, among WeWork’s biggest markets, are still well below prepandemic levels — and may never return to what they were, with many companies letting employees work fully or partly from home. In this environment, companies are vacating their spaces when leases expire or subletting them. As a result, record amounts of office space are being dumped onto the market, and rents have plunged.
This could hurt WeWork in a few ways, industry experts say. Fewer workers coming into cities means less business for all office space operators, co-working companies included. Falling office rents could undercut WeWork’s appeal and reduce what it can charge.
John Arenas, chief executive of Serendipity Labs, a flexible-office company, said urban co-working companies are “facing competition from sublet, and resistance and uncertainty about going back to work.”
WeWork has plenty of empty desks. In the third quarter, it had 461,000 memberships and 764,000 physical desks, which translates into an occupancy rate of 60 percent. That’s down from 85 percent in mid-2019 but up from 45 percent at the end of last year.
WeWork could benefit if companies that cut back on traditional leases decide they need flexible spaces when they want employees to meet in one place.
And WeWork’s management says companies it interacts with want 20 percent of their total space to be flexible, in theory providing solid demand. “As the world has re-evaluated and reimagined its relationship with the office, we have leaned into our foundation and reformulated our product set to match the demand we are seeing in the market,” Mr. Mathrani told investors this month.
WeWork is projecting that revenue more than doubles by 2024 and that memberships surge by more than 50 percent.
If all this happens, Mr. Neumann, who departed WeWork in a cloud during the attempted 2019 I.P.O., would stand to benefit. He will have an 8.4 percent stake in the public WeWork. Mr. Neumann has also received payments from SoftBank relating to his exit that exceed $800 million