WeWork Float Delayed

Expectations were high for the office space sharing firm, but there are concerns over its valuation and corporate governance

James Gard 17 September, 2019 | 12:10PM
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One of the most hotly anticipated IPOs of this year is set to be delayed. WeWork, the tech unicorn that provides shared offices for startups, had been expected to float this month with a valuation of just under $50 billion. This week the firm was expected to drum up interest from shareholders for the float, but its latest filing pushes this back to “the end of the year”, the firm says.

Concerns had been raised in recent weeks by investors over a number of issues, including corporate governance and valuation. WeWork itself is owned by The We Company, and founder Adam Neumann would retain voting rights worth 20 times that of ordinary shareholders. Neumann also received just under $6 million in stock for trademarking the “We” brand, a slab of stock he has just returned.

One of WeWork’s largest investors is Japan’s SoftBank, whose $100 billion Vision Fund takes big bets on companies with a technological or futuristic slant. It invested $2billion in WeWork at the original valuation of $47 billion, which is now expected to be significantly lower. SoftBank holds just under 30% of WeWork in total.

Some fund managers remain optimistic that the flexible office market still has potential, despite the delay to WeWork’s flotation.

“We believe the trend toward more flexible offices is here to stay, at least for certain tenants, although there are greater risks in the sector than currently appreciated,” says Rogier Quirijns, head of European Real Estate at Cohen & Steers and manager of the Cohen & Steers European Real Estate Fund.

This year’s highest profile IPO so far this year, Uber, has struggled to keep up with investors’ high expectations. It floated at $45 per share, or $82 billion, but is now trading at $34 per share. SoftBank also invested in Uber. Morningstar’s tech analyst Ali Mogharabi assigns a fair value estimate of $58 per share to Uber, which means that it is undervalued at current prices. Mogharabi bases his analysis on Uber’s estimated 30% share of the ride-sharing market, which will, according to Morningstar, be worth $411 billion by 2023 – and this excludes China.

Volatile stock markets and fears over global recession have tempered the enthusiasm of retail investors for new public offerings. For institutional investors such as fund managers, the shifting valuations of these companies makes it harder to value unquoted parts of their portfolios. Still, a big tech IPO is a significantly lucrative event for early investors; for example, WeWork’s original funding round valued it at just below $100 million, according to Pitchbook data.

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James Gard

James Gard  is senior editor for Morningstar.co.uk


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