WeWork's third-quarter losses and cash crunch show why SoftBank valued it below $5 billion

Jackal Pan/Getty Images

WeWork cofounder and former CEO Adam Neumann

• WeWork revealed mushrooming losses and dwindling cash reserves in its third-quarter earnings on Thursday.
• The coworking startup's net loss ballooned by more than 150% to $1.25 billion, and its available cash shrunk by around 40% in three months to about $1.3 billion.
• The worrying figures support SoftBank's decision to slash WeWork's valuation by more than 80% to below $5 billion last quarter.
• For more stories on WeWork, click here.

  ---

WeWork revealed mushrooming losses and dwindling cash reserves in its third-quarter earnings on Thursday, supporting future owner SoftBank's decision to slash its valuation of the business by more than 80% to below $5 billion last quarter.

The coworking startup's revenue jumped 94% year-on-year to $934 million as it added a record 115,000 desks last quarter. However, a spike in expansion costs meant its net loss ballooned by more than 150% to $1.25 billion. Moreover, its available cash shrunk by around 40% in three months, from $2.2 billion at the end of June to about $1.3 billion (excluding restricted cash and pending commitments).

SoftBank Investment Advisors - which manages the Japanese conglomerate's $100 billion Vision Fund I - cut its valuation of WeWork from nearly $30 billion to $4.9 billion last quarter. WeWork's soaring losses and cash burn were undoubtedly major factors in the decision.

"They knew the bulk of this and kept the public in the dark," about mounting quarterly losses, Vicki Bryan, CEO of research company Bond Angle, told the New York Times.

WeWork ramped up spending ahead of its planned IPO this year, as it expected to raise at least $3 billion, unlocking $6 billion in bank financing. However, investors balked at its questionable business model, hefty losses, limited governance, and the controversial behavior of cofounder and CEO Adam Neumann.

Faced with the prospect of going public at a fraction of the $47 billion private valuation it secured in January, and falling short of funding requirements, WeWork scrapped its IPO and Neumann stepped down. Running short of cash, it agreed a $9.5 billion rescue deal with SoftBank that gives it control of the company.