WeWork’s initial public offering is set to be possibly derailed by lack of institutional investors because of its inflated internal valuation.
WeWork is the latest unicorn to prepare for a major IPO. Unicorns are startups with private valuations that exceed $1 billion. Companies such as Lyft, Uber and Slack are unicorns that have gone public recently. These unicorns have seen their stocks fall immediately after entering the market and not reaching their initial levels.
Institutional investors are weary of the $47 billion internal valuation that WeWork has presented. Such an inflated valuation sets the stage for staggering losses in value the day of the IPO. WeWork only took in $3 billion dollars in revenue during the past year. WeWork’s revenue is dwarfed by
the $47 billion it has in long-term lease obligations.
“It’s trying to masquerade as a high-profitability tech business, when it’s really just a real-estate firm, with much higher expenses. And its corporate governance and certain transactions by CEO Adam Neumann raise multiple red flags,” Scott Galloway, a professor of marketing at New York University, said.
WeWork has not yet set the specific valuation that it will seek when it begins to sell shares on the market. There is the possibility of lowering the valuation that it presented during its last private-market funding push. However, that’s a move that companies usually try to avoid.