WeWork appears to be on the brink of filing for Chapter 11 bankruptcy in New Jersey, according to sources cited by The Wall Street Journal.
The possibility of WeWork seeking bankruptcy protection should not catch close observers of the flexible workspace provider by surprise. Back in August, WeWork had already issued a warning in its second-quarter earnings report, expressing “substantial doubt about the company’s ability to continue as a going concern.”
For several years, WeWork has grappled with a series of challenges as demand for its co-working spaces gradually dwindled. These difficulties were further exacerbated during the COVID-19 pandemic when businesses abandoned traditional office spaces, and employees shifted to remote work. Even though some companies have started returning to physical offices, WeWork’s space offerings failed to recover to their pre-pandemic levels.
Earlier this month, WeWork missed interest payments owed to its bondholders and was granted a 30-day window to rectify this, according to a securities filing. On October 30, WeWork officially began discussions with “certain stakeholders in its capital structure,” including SoftBank and Goldman Sachs, in an effort to enhance its financial position, while also taking steps to streamline its real estate holdings.
In August, the 13-year-old company reported a net loss of $397 million for the second quarter, despite generating revenue of $877 million. Although revenue had increased by 4% year-over-year, WeWork’s interim CEO, David Tolley, acknowledged that “Excess supply in commercial real estate, increasing competition in the flexible workspace sector, and economic volatility led to higher member turnover and softer demand than anticipated, resulting in a slight decline in memberships.”
WeWork’s stock tumbled by over 47% in after-hours trading, reaching just $1.21, marking a new 52-week low. This downturn in the company’s value brought its market capitalization down to a mere $121 million, a sharp contrast to the $47 billion valuation it had achieved after raising $1 billion in its SoftBank-led Series H funding round back in January 2019.
