A few months ago, talk of the pending WeWork initial public offering was all the buzz on Wall Street. Analysts spoke of a fundamental realignment of the real estate industry, and of a new age where the global workforce would shift to a "digital nomad" existence. Today, everything looks different. Just this week, Adam Neumann, the founder of WeWork, was forced to step down as CEO of his creation (though he will remain on as chairman of the board). So what does this mean for the future of the company?
Stumbling blocks
The original plan was for WeWork to go public as soon as September. However, a series of controversies have seemingly put a lid on such ambitions. At one point, the company was being privately valued at $47 billion. Today, it seems that it would be lucky to debut on the public markets at $10 billion.
What has been the catalyst for such a dramatic reversal? Well, a lot of it stems from the conduct of Neumann. The list of his questionable conduct includes selling the trademark "We" back to his own company for a handsome profit, as well as alleged problems with drug and alcohol abuse. He also recently announced his intention to be the world’s first trillionaire.
This has been a problem for WeWork’s principal backer, SoftBank, as well as other investors in the company. The main problem seems to be that a lot of investors were sucked in by WeWork’s purported aim to “elevate the consciousness of the world.” Given that the company continues to burn cash at a very high rate, it seems odd that Neumann has been allowed to stay as long as he has. However, there are also fears WeWork will not be able to survive the loss of Neumann in the role of the charismatic salesman CEO.
However, it does seem odd that shareholders of WeWork were happy to expand the company’s borrowing facility only a few months ago. In this context, it seems like Neumann could have been an invaluable asset. As it stands, however, he is removed for the foreseeable future.
I think all of this strikes at the core of a broader debate between the role of public and private markets. The conventional view is the private markets are for the "smart money," while stock markets are for the "dumb money." In the common imagination, public market investors are blinded by the idea of maximizing returns in the here and now. In reality, it seems as if the private investors were the ones who stayed away from it.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Bruce Flatt on His Investment Philosophy and Mistakes
- Howard Marks: The Fed's Job Is Not to Continue the Expansion at All Costs
- What Can Investors Learn From the Savings and Loan Crisis of the 1980s?
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
