WeWork warns of bankruptcy risk: How the workspace firm's finances became so fraught

WeWork’s latest financial difficulties suggest that the company is not only on a downward spiral, but fast becoming a relic of a bygone era in the world of work. 

SEC filings this week painted a grim picture for the co-working space firm, with the company warning that its current “losses and negative cash flows” raise “substantial doubt” over its ability to continue operating. 

“If we are not successful in improving our liquidity position and the profitability of our operations, we may need to consider all strategic alternatives,” the company said. 

These ‘strategic alternatives’ could come in the form of debt refinancing, a reduction in business activities, the sale of assets, or even “obtaining relief under the US bankruptcy code”, WeWork added. 

WeWork’s current financial standing certainly appears to have a dire outlook and follows several years of turbulence and losses. 

In the first half of this year, the firm recorded a net loss of $700 million - grim figures that came after staggering losses of $2.3 billion in 2022 due to deteriorating economic conditions. 

So what has gone wrong for WeWork? 

WeWork differently now

The current situation appears to be a confluence of issues that have placed the firm in a difficult position. The COVID-19 pandemic and shift to remote work did no favors for an organization whose entire proposition centers around office work. 

This widespread shift to remote operations prompted a slew of firms globally to exit their leases once it became apparent that remote was there to stay. 

More recently, David Tolley, interim CEO at the firm specifically cited “higher member churn and softer demand” as key reasons for the current slump, along with an “excess supply in commercial real estate”. 

Deteriorating economic conditions have also contributed to this downward spiral the company is on, with companies re-evaluating their in-office activities for myriad financial reasons. Rising energy costs also appear to have played a role in this decline. 

Rick Smith, managing director at insolvency service Forbes Burton, told ITPro that the shift to remote and hybrid work has “undeniably” played a role in the current hardships experienced by the Softbank-backed firm. 

"The contributing factors to this have included the fact that costs have gone up but there are also factors like energy and rents, which will be affecting the cost to run the workspaces,” he said. 

“This, combined with changing attitudes to where and how people work with hybrid models of working becoming normal practice has a direct effect on WeWork’s bottom line. If they cannot keep up with this trend, it could spell further trouble.

"The shift to remote working has undeniably affected WeWork and their very business model seems to be under threat. The way people will work from now on will no doubt change again so unless there is something fundamental the company can pivot to cater for, it may be hard for them to take control of the current situation."

A protracted fall from grace 

WeWork’s bleak outlook comes in stark contrast to pre-pandemic times in which the company’s offering was hailed as the “future of work”. 

The company rapidly cozied up to the burgeoning global tech industry, offering startups and companies of all sizes the chance to embed themselves in its spaces that were marketed more as a self-sustaining ecosystem than a simple office space. 

WeWork expanded rapidly over the course of several years, opening locations in more than 30 countries globally and expanding its member count to more than half a million. 

At its zenith, WeWork was preparing to go public at a valuation of $47 billion, but that all came crashing down in 2019 with a botched IPO due to concerns over the longevity of the business model and the company leadership - namely Adam Neumann’s perceived erratic leadership style. 

When it eventually went public in 2021, it did so at $9 billion, a fraction of what it was once valued at. 

Now, the broader global technology sector is facing its own challenges, spurred on by economic disruption, inflation, and a wave of layoffs at the beginning of this year. 

This certainly appears to have had a knock-on effect on the co-working space, and could herald even tougher times if investors get spooked, Smith warned. 

"Business continuation for WeWork looks bleak at best,” he said. “They can hope to carry on, but if losses like this continue then investors will keep pulling their money and support, which has so far been holding the company afloat. 

“Shareholders will start showing their overall disdain by selling off shares before the value drops even further. Once this starts it can be a very slippery slope.”

For years, the company was hailed as the very future of work, but the reality is that the way we work has changed, and the company has been unable to adapt to changing conditions.