WeWork Goes Public Two Years After Aborted I.P.O.

Two years after WeWork’s attempt to become a public company flamed out spectacularly, the co-working giant started 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. And WeWork made it through the last two years only because of huge financial support from SoftBank, the Japanese conglomerate that is WeWork’s largest shareholder.

“We got here on a different road than we anticipated, but we’re here,” Marcelo Claure, WeWork’s executive chairman and a senior SoftBank executive, said in an interview Thursday with CNBC.

Instead of an initial public offering, WeWork entered the public markets by merging with a special-purpose acquisition company, or SPAC, something of a craze these days. 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. At Thursday’s stock price, WeWork was worth about $9.5 billion, a fraction of the $47 billion valuation placed on the company before investors soured on it in 2019.

Shares in the SPAC, called BowX, were trading around $10 this month. On Thursday, the new WeWork shares — with the ticker symbol WE — closed at $11.78.

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, which 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. SoftBank and other investors have to wait several months before they can sell their shares.

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 — and hopes it will become profitable if its revenue grows. Some of the biggest savings have come from renegotiating leases with landlords or getting out of them.

Sandeep Mathrani, WeWork’s chief executive, said this month that the company had exited more than 150 full leases and done 350 lease amendments so far this year. “What we did through the pandemic was correct the cost structure, right size the company,” he said in an interview with CNBC on Thursday.

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.

WeWork is projecting that revenue more than doubles by 2024 and that memberships surge by more than 50 percent.

If a
ll this happens, Mr. Neumann, who departed WeWork under a cloud during the attempted 2019 I.P.O., would stand to benefit. His stock in the company is worth nearly $690 million at Thursday’s closing price. He also holds a type of option on WeWork shares that is worth over $230 million at the stock price. Combining those sums with over $800 million he received for exiting and giving up control of the company, Mr. Neumann could one day reap well over $1 billion from WeWork.

“Adam is just another shareholder,” Mr. Claure told CNBC.