SoftBank faces hard knock if WeWork IPO valuation is slashed
WeWork owner The We Company is weighing slashing the valuation of its forthcoming initial public offering (IPO) to below $20bn, two sources said, in the latest headwind for leading shareholder SoftBank Group whose key group portfolio firms have tumbled in value.
The valuation for the money-losing US office-sharing startup could be as low as $15bn-$18bn, one of the sources with direct knowledge of the matter said. The other source said the valuation was unlikely to be as low as that.
SoftBank, whose $100bn Vision Fund is widely seen as having contributed to frothy tech valuations, has urged WeWork to shelve the IPO due to tepid investor demand, the Financial Times reported. SoftBank declined to comment.
But the tech conglomerate’s reluctance to pump further funds into WeWork means the startup “may have no choice but to push ahead with the IPO at a much lower than anticipated valuation”, one of the sources said.
WeWork’s planned listing follows weak initial trading at other startups including Uber Technologies and Slack Technologies, both backed by SoftBank.
While SoftBank and its Vision Fund emphasise their long-term investing credentials, founder and CEO Masayoshi Son has set out an ambitious IPO pipeline for tech investments spanning ride-hailing, fintech and health startups.
Putting WeWork’s offering on hold would disrupt that schedule at a time when SoftBank is seeking funds from investors for a second Vision Fund, for which it says $108bn in pledges have been secured.
SoftBank made a follow-on investment in WeWork, one of its biggest tech bets, at a $47bn valuation earlier in 2019 — a number widely treated with scepticism by analysts.
While long-time Son lieutenant and group vice-chair Ron Fisher is pushing for the IPO to go ahead, others at SoftBank are pushing for a delay, one source said.
Sanford C Bernstein analyst Chris Lane said if WeWork halts its IPO, SoftBank could come up with an alternative funding plan for the startup, which he estimates needs $9bn in funding to become cash-flow positive.
SoftBank “have got an important voice, but more importantly they have money … [WeWork] will have to listen to them”, said Lane, who values the office space-sharing firm at $23bn.
The tech conglomerate has burnt through much of the $100bn raised by its first Vision Fund in just two years, recording big paper gains on internal revaluations of its tech investments.
SoftBank defends its valuation techniques, which include cash-flow analysis, recent transactions and comparison with peers to underpin its numbers.
At the end of June the fund recorded the value of $71bn in investments in 83 startups as having grown by $20bn. Since then the share price of portfolio companies Uber and Slack have both fallen by around a third.
SoftBank says many investments receive a vote of confidence as third parties come in as co-investors or by making follow-on investments at the same or higher valuations.
If a tech company shelves an IPO due to a lower valuation than expected, investors are generally expected to take that fall into account when appraising their stakes.