WeWork Is Pulling Its IPO

Morning Markets: An unsurprising end to a surprising saga.

News broke this morning that the We Company, parent to the popular WeWork coworking brand, will withdraw its infamous S-1 filing and delay its IPO. The company is virtually guaranteed to not go public in 2019. How the company will finance itself is now an open question.

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The highly-valued company said in a statement that it has “decided to postpone our IPO to focus on [its] core business, the fundamentals of which remain strong,” and that the management team has “every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future.”

The future is the key operative there. It’s going to take some time to de-poison the company’s cost structure and culture. Regarding the former, the company’s financial woes are well-known (and well-illustrated in its S-1). Turning to the latter, here’s merely the latest in a number of pieces detailing what was wrong at the company.

So What

That WeWork is pulling its IPO isn’t a huge surprise. The firm couldn’t generate sufficient investor interest at a fraction of its preceding valuation due to low margins, high costs, and astronomical cash burn. Its founder was found to be in the middle of a web of self-dealing that was impossible to defend. And WeWork’s internal culture and corporate governance were bonkers.

Now the CEO is out, the governance is changed, the non-core businesses are being sold off, layoffs are likely, and the IPO is off. That leaves WeWork with a slimming cost structure, yes, but also a possibly serious cash situation. It’s something that we’ve covered before.

In short, WeWork’s cash burn is astronomical. The firm’s cash immolation in the first half of 2019 was around $2.54 billion, between operations and investing categories. WeWork had $2.47 billion in cash-on-hand at the end of the second quarter of this year (gross cash and equivalents). You can do the math.

Provided that WeWork can dramatically slow its spend, its burn may fall. But the company looks shaky without some money coming in. And now we know that it won’t come from public investors. At least for some time.

So much for October.

Illustration: Dom Guzman.