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Yesterday, the the Wall Street newspaper indicated that WeWork was seeking to reduce its valuation by more than 50% in order to facilitate its IPO. More recently, WeWork (The We Company) reached a private value of $ 47 billion in January when Masayoshi Son's SoftBank invested in the company.
Over the years, SoftBank has invested more than $ 10 billion in The We Company and currently holds a 29% interest. As a result, WeWork SoftBank's largest investment exceeds the $ 7.7 billion investment by the Japanese conglomerate in Uber (UBER).
The IPOs of Uber and Lyft
Uber was released in May at a lower valuation than expected. Despite maintaining its lower valuation, Uber's action has failed to retain its listing price. At 10:08 am, Uber was trading at $ 31.95 down 1.5%, 29% below its original price of $ 45.
However, the potential fall of WeWork's valuation overshadows Uber's slide. Uber's main rival, Lyft (LYFT), was released for $ 72. However, he was trading at $ 45.06 today at 10:13 EDT. As my colleague Sharon Bailey noted, the road ahead could be more difficult for Uber and Lyft.
WeWork's finances
This year, I raised several concerns about the dazzling evaluation of WeWork. We reported revenues of $ 1.54 billion in the first half of 2019 compared to $ 764 million in the first half of 2018.
WeWork's operating losses more than doubled to $ 1.37 billion in the first half of 2019. The Company has spent $ 200 million in operating cash flow in the first half of 2019 alone. .
As of June 30, 2019, WeWork had $ 2.47 billion in cash and cash equivalents. However, this money can only last a few quarters, with the company having used $ 2.36 billion in investments in the first half.
WeWork's latest $ 47 billion private valuation translates into 24 times revenue in 2018. This is a high premium for a company that loses billions and has significant fixed costs.
WeWork's cash utilization is expected to reach $ 4 billion in 20019 and $ 5 billion in 2020. We expect much more money from WeWork. On April 30, the the Wall Street newspaper WeWork would need a $ 19.6 billion financing until 2026. The company should not be profitable before that date.
In comparison, Uber is trading at 4.8 times its revenue for 2018. Slack (WORK), another SoftBank company that went public in June, is currently trading 25 times its revenue for fiscal year 2020 (ended Jan. 31).
SoftBank
Last quarter, SoftBank Vision Fund announced a $ 1.8 billion unrealized loss on its investments primarily due to Uber's unsatisfactory IPO. Uber's inventory has declined significantly in the current quarter to date, compounding the Vision Fund's unrealized losses.
Although SoftBank Vision has announced an unrealized profit on its investment in Slack during the last quarter, the stock has fallen more than 20% since the beginning of the current quarter. Slack traded down 5% to $ 28.50 at 10:52 EDT today, as growth and profitability concerns haunt stock.
In our opinion, a decline in the valuation of The We Company could hinder the result of SoftBank Vision Fund. SoftBank Vision Fund and Masayoshi Son investors could feel good about not investing $ 16 billion in WeWork.
SoftBank also launched SoftBank Vision Fund 2, with Apple and Microsoft being one of the sponsor partners investing in artificial intelligence startups. A significant reduction in the valuation of The We Company could also be a problem for the fundraising of this fund.
What happens to WeWork's debt plans?
We also plans to borrow in addition to the proceeds of its IPO. Although the company is seeking to borrow $ 6 billion, the debt financing is contingent upon the raising of at least $ 3 billion by WeWork as part of its IPO.
If WeWork's valuation is halved, it will have to sell double the shares to get the same amount. This action would result in further dilution for SoftBank as well as for CEO Adam Neumann. The downgrading of the valuation could therefore also adversely affect WeWork's indebtedness and, as a result, the cash flows.
WeWork has already raised $ 702 million of bonds maturing in 2025. These bonds are currently trading at a yield of 7.32%.
WeWork is not a technology company
We's company is generally projected as a technology company to enhance its valuation. In August, we explored The article by Dror Poleg in 2017 compared WeWork to Apple. However, a decline in valuations prior to its IPO could undermine this discourse. In our opinion, WeWork is a real estate company. Period.
The most successful IPOs in 2019
Uber lost money on the first day of his career as a public company and Slack failed to maintain his momentum after an astonishing start. However, some IPOs stood out. Beyond Meat (BYND), which was released in May at a fixed price of $ 25, climbed 163% on the first day. After that, BYND has reached over $ 200. Although the stock is down against its highs, it is still trading at $ 157, more than 6 times the price of its IPO.
CrowdStroke's cybersecurity firm (CRWD), which had an introductory price of $ 34, increased by about 70% to $ 58 on the first day. After that, CrowdStrike climbed to over $ 100. Although the stock is down against these highs, it still trades twice its IPO price. CrowdStrike was trading at $ 78.68 at 11:46 am EDT.
Pinterest (PINS) went public on April 18 and gained more than 28% on the first day to close at $ 24.40. Pinterest maintained its lead over the first day and was trading today at 30.40 USD at 11:53 EDT.
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