If you work near the CBD, chances are you would have heard of WeWork – the most well-known company in the co-sharing office space. In 2019, co-working spaces took up 3.7 million square feet of Singapore’s commercial space, becoming the top 6 occupier sectors in the CBD Grade A office space. WeWork, at that time, was the largest flexible workspace operator in Singapore – with a 22% market share. Yet, just as quickly as the pandemic upheaved our economy, WeWork underwent a similar turbulent change.
Documented in a book titled: Billion Dollar Loser, the authors detailed the spectacular expansion of WeWork, to an eye-watering valuation of US$47 billion in 2019 and becoming one of the largest unicorns. Then, it all came crashing down when the company tried to go public, which exposed its baffling business practices and a disconcerting cash burn rate that is best described by the byline ”WeWork loses US$1.9 billion on sales of US$1.8 billion.”
Yet recently, in October 2021, WeWork gave it another try. It went public on the NYSE via a SPAC merger with blank-check firm BOWX Acquisition Corp, at a much lower valuation of US$9 billion. So, what has changed for the company?
A lot, surprisingly. A new leader, fewer employees, and a global pandemic.
The Tide Changes For WeWork After CEO Replacement
Adam Neumann, WeWork’s founder and former CEO, was ousted in 2019 after reports of his questionable practices and excessive lifestyle. The Wall Street Journal in 2019 reported that Neumann was privately buying property using borrowed money from WeWork and then leasing it to WeWork (an illegal practice known as self-dealing). Effectively, the company was paying him rent while lending him money.
Its new CEO, Sandeep Mathrani, places the company in much stabler hands. A veteran real estate professional, his resume includes rescuing America’s second-biggest owner of shopping malls, GGP, from bankruptcy in 2010, then building it back up to US$15 billion in 2018. For that, it won him a reputation as a corporate turnaround specialist.
Surviving The Pandemic
Once he took over the helm at WeWork, he shed 106 of the company’s worst-performing properties, and renegotiated more than 100 lease agreements, whilst laying off 8,000 employees (more than half of its global workforce). All in all, he helped the company reduce future lease payments by US$4 billion, cut overhead costs by US$1.1 billion and trimmed down US$400 million in operating expenses.
Some of these processes were painful, but necessary if WeWork was to survive the pandemic. Surprisingly though, in Singapore at least, WeWork continued its expansion, including the acquisition of a 21-storey building at Collyer Quay, as MNCs consolidated their regional headquarters here.
Besides inducing a wave of cost-cutting, the pandemic has fundamentally changed the workplace. As a lesson learned from COVID-19, companies want to be able to relinquish their rental expenses more quickly as compared to a traditional office lease, thus driving demand for flexible office space.
Additionally, WeWork offers a significant value proposition that would appeal to businesses: the cost per employee for companies using WeWork is 20-30% lower than traditional leases. Moreover, with the underlying shift to a hybrid workplace model – whereby employees want to work in different settings – employers will need office space in a wider variety of locations to address a dispersed workforce. A survey by real estate research firm CBRE showed that 86% of tenants would move towards flexible office space as part of their future real estate strategies. Thus, WeWork stands to benefit from the forthcoming workplace transformation.
WeWork offers significant cost savings per employee [WeWork Management Presentation, March 2021]
WeWork’s Current Financial Health
Now, demand for WeWork’s office space has soared, with 575,000 memberships globally – topping the record before the pandemic. Its revenue for Q3 2021 was $661 million, up 11% from the previous quarter and its revenue in September was the highest recorded in 2021. It recorded an adjusted EBITDA loss of $356 million – a sizeable loss given its revenue – but a $93 million improvement relative to the previous quarter.
Its burgeoning customers base has expanded from freelancers and mini startups to large enterprise clients, including 57% of the Fortune 100 companies. This is beneficial to WeWork as enterprise members tend to sign longer leases, with an average commitment length of 28 months. Moreover, WeWork serves government agencies such as GovTech Singapore and the Ministry of Culture, Community and Youth.
Meanwhile, in line with its international release, WeWork introduced its All Access offering in Singapore. The plan provides the subscriber with a keycard to access any of WeWork’s locations in Singapore, a welcome respite from working at home or out of a cafe. When international travel resumes, the keycard will become a passport to 800-plus offices across 150 cities worldwide, a true enabler of flexi-work. So far, its All Access memberships are growing rapidly – at 60% quarter-over-quarter. To further the member acquisition funnel, WeWork has launched an affinity partnership with Grab and ramped up broker commissions.
WeWork’s suite of services [WeWork Earnings Presentation, Nov 2021]
Given the positive developments across the company, WeWork’s CEO is upbeat about reaching profitability by 2022. He said, ”[With] revenue growing 10-15% a quarter…[and the corrected cost structure], we will be profitable and this is before we had the All Access product. The All Access product, [with] 32,000 members, gives us over $100 million of revenue a year, and this is before we launched and commercialized our workplace management product so we feel pretty comfortable that we’ll get there next year.”
WeWork’s own presentation shows that if it hits 70% occupancy rate, it will achieve positive EBITDA. Currently, WeWork is already at 65%. With All Access, management expects total occupancy to rise to 95% by 2024. This will drive revenue up to US$4.3 billion and achieve an EBITDA of US$243 million.
WeWork’s Investor Day Presentation, Oct 2021
WeWork’s Differentiates Itself From The Competition
With the co-working market rising exponentially, competition is intensifying. In Singapore, there are close to 30 brands offering shared workspace solutions, to name a few: Justco, Distrii, Servcorp. To differentiate itself from the competition, WeWork has launched WeWork Business Solutions. It is a bespoke platform that delivers hassle-free, cost-effective solutions for its members, such as tax compliance; accounting; and financial services, so as to enable them to focus on business growth. The launch of such services put WeWork closer to its ambition of being a holistic, one-stop-shop for businesses.
WeWork isn’t just about coworking too, WeWork for Education is partnering up with universities in a trend towards hybrid learning models. In 2020, New York University leased seven full floors of satellite learning space close to its Shanghai campus to support the learning of 3,000 students. Customised classrooms, lecture halls and quiet study spaces were all included to provide students with a conducive learning environment. This model has been exported to Singapore too – with Columbia University sponsoring a dedicated WeWork workspace in the city for its students last year.
WeWork Can Make A Comeback
WeWork’s spectacular downfall in 2019 has made it a poster child of corporate excess and a classic business case study of business mismanagement. However, WeWork’s turnaround in the short 2 years seems to highlight a new narrative: WeWork might just work out this time. We’ve seen the major cost-cutting it has executed, the burgeoning memberships from All Access and enterprise clients, as well as management’s upbeat but realistic earnings forecast.
Given the strong trend towards co-working and remote learning, WeWork is well-positioned to ride these tailwinds in a post-Covid world. Left humbled after its 2019 saga, its valuation has been cut to US$9 billion from US$47 billion. Yet, it is in much better condition than it was before the pandemic. With its breakeven occupancy rate at just 70%, it leaves WeWork with plenty of runaway to increase profits. Investors ought to give WeWork’s turnaround more attention.
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