WeWork's new chairman Marcelo Claure ripped up the company's old business model in a staff presentation on Friday and promised that the lossmaking property group would shift away from taking on risky long-term leases in many cities, cutting to the heart of an issue that plagued its failed initial public offering.
Mr Claure told employees that the company would continue to sign its own leases in its top 12 or so markets, in places like New York and London, but would instead strike deals to manage properties for other landlords elsewhere, according to a person in attendance at an internal meeting. That would remove the risk that it gets stuck with vacant buildings in a downturn.
WeWork could also look to sign revenue-sharing deals with landlords in some markets and to open franchises in areas such as the Middle East and Africa, as it currently does in India, the person added.
The changes are part of Mr Claure’s plan to get the company to profitability, which has become a priority after its failure to seal a $9bn-plus (€8 billion) fundraising via an IPO led to a cash crunch this autumn. SoftBank, the Japanese telecoms and technology group that is WeWork’s biggest backer, rescued it and installed Mr Claure as chairman last month.
He told employees that the company would be profitable after adjustments by 2021 and would begin to generate cash by 2023.
The shift in WeWork's business model is unlikely to have an immediate effect on the New York-based group's finances. While the company has dramatically slowed its new lease signings, it is expected to still open hundreds of locations later this year and in 2020. The vast majority of those leases were signed as part of an aggressive and costly growth strategy ahead of the planned IPO, the collapse of which culminated in the departure of Adam Neumann, co-founder and then-chief executive.
The presentation to staff on Friday follows weeks of lay-offs at the 14,000-person company, which began around the world earlier this month and hit WeWork’s Chelsea New York headquarters this week. The company said it cut 2,400 employees from its payroll. The figures did not include the roughly 1,000 janitorial staff who are being transferred to an outside contractor or the 1,000 staff members who joined the company through acquisitions that WeWork is now attempting to shed.
SoftBank is bankrolling a near-$10 billion rescue package in an attempt to stabilise the company’s finances. WeWork has lost $5.4 billion since the start of 2016, including $1.3 billion in the third quarter of this year alone, and it disclosed to US regulators this year that it has $47bn worth of lease obligations outstanding. – Copyright The Financial Times Limited 2019