In order to have a successful IPO WeWork needs to address the obvious questions.
In an interview with Yahoo Finance’s On The Move, Atish Davda, EquityZen CEO, outlined three key issues that investors want addressed: WeWork’s governance, its business model and path to profitability.
“I think we're seeing the results of that [referring to doubts about WeWork] with the potentially lower IPO valuation,” said Davda. ”I mean, at $20 billion we're talking about a company that's worth over 10 times what its competitor's multiple is and the company produces more losses than revenue that it generates. I think the comparison may be stark but WeWork has a lot of questions to answer. And as of now, we haven't seen a lot of answers for them.”
The Wall Street Journal reported that the We Company, the parent company of WeWork, was rethinking its strategy to take the company public ahead of its highly-anticipated IPO. The company is reportedly reconsidering its previously set target of up to $30 billion and may lower that closer to $20 billion. This comes after the company's last funding raise valued it at close to $47 billion.
As WeWork faces tough criticism over its valuation, It appears investors are checking themselves this time around and not getting swept up in IPO mania. Davda said companies that can deliver growth and profitability will be rewarded “extremely well” but notes while WeWork has delivered growth they need to raise cash in order to do so. And according to Davda, that’s a big problem.
”They need cash to grow. They need growth for cash,” he said. “And I think what we're seeing Wall Street say to WeWork is, if you want our cash, we need to see how you're going to become profitable.”
One of the bigger questions is what does the WeWork IPO mean for Softbank, which has a large position in WeWork via its Vision Fund.
“Is Softbank going to double down on WeWork giving it a lifeline to go until next year or potentially go public above a $20 billion mark?” he said. “The jury’s out on that.”
WeWork may have to come to terms with the fact that “there’s no reason for the company to trade trade at 26 times it sales, which is 25 times higher than its closest competitor, real estate company IWG.”
While WeWork may “have brand value and better connect with today’s workforce,” said Davda, there’s little proof, so far, justifying its current valuation.
Yvette Killian is a producer for Yahoo Finance’s On The Move.