It is difficult to answer the question if WeWork was overvalued in the past. On the one hand, the company’s financial performance was below expected, which demonstrates that the company had inadequate management and predications. On the other hand, in the late 2010s, the company managed to attract several reputable investors, which demonstrates these investors saw high potential in the company. However, I believe that WeWork’s valuations before 2019 were inadequate for several reasons. The present paper aims at overviewing these reasons with references to the current situation.
It is crucial to notice that WeWork marketed itself as a disruptor of the real estate industry, which had shaken the minds of the investors. The company positioned itself in line with tech firms, like Uber, which do not require high investments to expand. WeWork’s business model, however, is capital intensive, as much money needs to be invested in the office space for it to adhere to company standards. Instead of just launching an app in a new country, WeWork needs to lease new space, repair it to fit the company’s image, and find customers. It is difficult for WeWork to adjust the supply according to the demand swiftly, which can lead to losses in case of inadequate planning. Therefore, it is clear that WeWork is an ordinary real estate company with an innovative approach to marketing. In other words, the company cannot grow as fast as tech firms, which implies that it was overvalued in terms of its growth opportunities.
When speaking about the financial performance, WeWork was losing money even before the COVID-19 pandemic. In comparison with IWG and Servcorp, the company’s profitability was struggling in 2019, as it reported a loss of £1.5 billion. Considering that the total revenue was £1.4 billion, the financial performance of the company was astonishingly disastrous. The situation worsened during the COVID-19 pandemic due to social distancing and self-isolations. If the valuations were done based on the financial performance, they would be significantly lower.
The final argument supporting the claim of the present paper is the actions of top managers. It is clear that the company can be evaluated based on its intangible resources, such as patents, relationships with the customers, and employees. The most valuable employees are usually top managers; therefore, if the company has strong leaders in pin executive positions, it may be evaluated higher than otherwise. In the case of WeWork, Adam Neumann did not appear to be a bright leader, as he was more concerned with personal financial well-being than with the company’s success. In fact, he leased a building that he partially owned to WeWork. Moreover, his predictions and expectations were flawed, as the company made a negative net profit and had only 36,000 members in comparison with the predicted 260,000 in 2019. Mr. Neumann made promises that he could not keep, which resulted in the loss of investors’ trust and a decline in the company’s financial performance. The inadequate work of the company’s top managers supports the claim that the company was overvalued in 2019.
In conclusion, while WeWork was attractive to investors in the 2010s, the company was systematically overvalued. The central reason for the matter is viewing the company as the disruptor of the industry with a high potential for rapid growth. The approach was incorrect since the business model was capital-intensive. Additionally, the company’s financial performance and managers’ decisions were inadequate, which supported the claim that WeWork’s valuations were inadequate in the past.