Yesterday, the Wall Street Journal reported that WeWork is looking to cut its valuation by over 50% to ease its upcoming IPO. Most recently, WeWork (The We Company) was privately valued at $47 billion in January when Masayoshi Son’s SoftBank invested in the company.

Over the years, SoftBank has invested over $10 billion in The We Company and currently holds a 29% stake. That makes WeWork SoftBank’s largest investment, even bigger than the Japanese conglomerate’s $7.7 billion investment in Uber (UBER).

Uber and Lyft’s IPOs

Uber went public in May at a lower-than-expected valuation. Despite keeping its valuation lower, Uber stock has failed to hold on to its IPO price. At 10:08 AM EDT today, Uber was trading 1.5% down at $31.95—that’s 29% below its IPO price of $45.

However, WeWork’s potential fall in valuation overshadows Uber’s slide. Uber’s primary rival, Lyft (LYFT), went public at $72. However, it was trading at $45.06 today at 10:13 AM EDT. As my colleague Sharon Bailey noted, the road ahead could get rougher for Uber and Lyft.

WeWork’s finances

This year, I’ve raised concerns about WeWork’s eye-popping valuation multiple times. The We Company reported $1.54 billion in revenues in the first half of 2019 compared to $764 million during the first half of 2018.

WeWork’s losses from operations more than doubled to $1.37 billion in the first half of 2019. The company burned $200 million in operating cash flows in the first half of 2019 alone.

On June 30, 2019, WeWork had $2.47 billion in cash and cash equivalents. However, that cash can only last a couple of quarters, as the company used $2.36 billion in investing activities in the first half.

WeWork’s last private valuation of $47 billion translated to 24x its 2018 revenues. That’s a high premium for a company that’s losing billions and has substantial fixed costs.

WeWork’s cash burn is expected to reach $4 billion in 20019 and $5 billion in 2020. In our estimation, WeWork would need significantly more money. On April 30, the Wall Street Journal reported that WeWork would require $19.6 billion in financing until 2026. The company isn’t expected to be profitable until then.

In comparison, Uber is trading at 4.8x its 2018 revenues. Slack (WORK), another SoftBank company that went public in June, is currently trading at 25x its fiscal 2020 (ending January 31) revenues.

SoftBank

Last quarter, SoftBank Vision Fund reported an unrealized loss of $1.8 billion on its investments, primarily due to Uber’s underwhelming IPO. Uber stock has fallen substantially in the current quarter so far, adding to the Vision Fund’s unrealized losses.

Although the SoftBank Vision Fund reported an unrealized profit on its investment in Slack last quarter, the stock has fallen over 20% since the beginning of the current quarter. Slack was trading 5% down at $28.50 at 10:52 AM EDT today as growth and profitability concerns haunt the stock.

In our view, a drop in The We Company’s valuation could hamper SoftBank Vision Fund’s P&L. SoftBank Vision Fund investors and Masayoshi Son may be feeling good about not having invested $16 billion in WeWork.

SoftBank has also launched SoftBank Vision Fund 2, with Apple and Microsoft among the limited partners investing in artificial intelligence startups. A significant cut in The We Company’s valuation could also spell trouble for fundraising for that fund.

What happens to WeWork’s debt plans?

The We Company also plans to raise debt in addition to its IPO proceeds. While the company is looking to borrow $6 billion, however, the debt financing is contingent on WeWork raising at least $3 billion in its IPO.

If WeWork’s valuation is cut in half, it would have to sell double the shares to raise the same amount of money. This action would lead to further dilution for SoftBank as well as CEO Adam Neumann. So, the drop in valuation could also spell trouble for WeWork’s debt raising and, in turn, cash flows.

WeWork has already raised $702 million through bonds maturing in 2025. These bonds are currently trading at a yield of 7.32%.

WeWork is not a tech company

The We Company has generally projected itself as a tech company to boost its valuation. In August, we explored Dror Poleg’s 2017 article that compared WeWork with Apple. However, a drop in valuation before its IPO could undermine that narrative. In our view, WeWork is a real estate company. Period.

Most successful startup IPOs of 2019

Uber lost money on its first day as a public company, and Slack failed to maintain momentum after an astonishing debut. However, some IPOs have stood out. Beyond Meat (BYND), which went public in May at a set price of $25, soared 163% on day one. After that, BYND spiked to over $200. Although the stock is down from its highs, it’s still trading at $157, which is over 6x its IPO price.

Cybersecurity firm CrowdStroke (CRWD), which set $34 as its IPO price, rose around 70% to $58 on day one. After that, CrowdStrike soared to over $100. While the stock is down from these highs, it’s still trading 2x its IPO price. CrowdStrike was trading at $78.68 at 11:46 AM EDT.

Pinterest (PINS) went public on April 18 and gained over 28% on day one to close at $24.40. Pinterest has maintained its first-day lead and was trading at $30.40 at 11:53 AM EDT today.

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