WeWork FDI at risk in challenging 2019

The We Company, the new umbrella company which owns office space company WeWork, is facing a challenging 2019 as its main financial backer, Japanese investment company SoftBank led by visionary Masayoshi Son, has sharply scaled down its investment commitments.

“This is certainly not a positive development and there could be a less aggressive approach in 2019 in getting new services,” says Marc Einstein, chief analyst at ITR Corporation Japan. “I wouldn’t be surprised to hear an announcement like that soon.”

According to various press reports, Mr Son had agreed to inject into the company fresh capital in the order of $16bn, only to reduce that to $2bn when Softbank was hit by the end-of-year tech stock rout, which made its investors more cautious about future commitments into WeWork, whose heavy investment programme has yet to deliver profits.

Regarding WeWork co-founder and CEO Adam Neumann, Mr Son said in a statement: “WeWork has already experienced unparalleled growth and we are confident that with Adam’s vision and this growth capital the company will be able to aggressively pursue the enormous market opportunity ahead of them.”

WeWork and its subsidiaries have now raised more than $10bn in total commitments from SoftBank since 2017, although the latest twist of events may be a wake-up call for the company sensation.

“I think there is a lot of overhype,” Mr Einstein says. “There are worries about the competitive advantage of WeWork going forward, despite the concept of shared space being a trend that we will definitely see more of.”

WeWork has embarked on an investment spree since gaining SoftBank’s backing, buying up office real estate at unrivalled pace all over the globe to transform it into co-working spaces for its members. In 2018 alone, it undertook 204 greenfield FDI projects from January to November, which made it the world’s most active foreign investor across the sectors, according to greenfield investment monitor fDi Markets. Today, the company is active in 425 locations in 100 cities across 27 countries. However, this intense investment programme has not made the company profitable yet, and losses rose to $1.2bn in the first nine months of 2018.

“Overall WeWork is very vulnerable to price and competitive pressures, more than the traditional tech unicorns. I think there is quite an onus on them to find more services and a slightly different business model going forward,” says Mr Einstein.

The rebranding as the We Company is part of a plan to widen the company’s scope and business.

This rebrand will lead to three distinct businesses: WeWork, a shared office space provider, WeLive, a shared apartment space provider, and WeGrow, a ‘conscious entrepreneurial’ education provider. WeWork has also shared its 2019 business plan, stating its plan to move into open banking and yacht charters in the future.

“The launch of the We Company is not to divert attention, but is more of a tacit admission that they need to be more than a office space rental company to be competitive, create stickiness and demand a premium in the market,” Mr Einstein concludes.