Somehow WeWork—WeWork!—Is on the Cusp of Thriving

Comebacks is a series about businesses that have made dramatic turnarounds during the pandemic, in partnership with Slate’s Thrilling Tales of Modern Capitalism podcast.

If you had to bet on a company to thrive at the start of a once-in-a-century global pandemic, you would have been on the right track with vaccine-maker Moderna (stock up 750 percent in the past 12 months), digital conference software Zoom (stock up 400 percent), or e-commerce giant Amazon (up 72 percent—for a market capitalization of $1.5 trillion).

If you tried to design a company to fall flat on its face over the past year, you’d have trouble coming up with a more ruinous proposition than WeWork, the coworking startup whose failed IPO was the talk of Wall Street and Silicon Valley in the fall of 2019. One business you really didn’t want to be in in 2020 was office leasing. White-collar workers stopped commuting in mid-March, and they have not gone back.

According to the commercial broker Cushman and Wakefield, the pandemic has wrought the largest nine-month decline in occupancy ever recorded, with the U.S. office vacancy rate rising from 12.9 to 15.5 percent. That’s still a couple points below Great Recession levels, in part because owners sign office tenants to long leases and turnover is slow. Still, there’s 103 million square feet more on the market now than there was last March. David Smith, a researcher at Cushman, says the broker expects vacancy to keep rising over the next year.

WeWork signs long leases with its landlords but often goes month to month with its customers. In a crisis, that’s the worst of both worlds. A couple months into the pandemic, the company had tumbled from its notorious 2019 valuation of $47 billion to $2.9 billion in May 2020. It had new leaders after firing its charismatic founder-CEO and flirting with bankruptcy.

Here’s a surprise: The Wall Street Journal reported last week that WeWork now plans to go public this year with a SPAC, or special-purpose acquisition company, that would value the company at $10 billion. That figure would be a fraction of the estimate that SoftBank cooked up in 2019, but that number was always fanciful, and $10 billion is a great deal more than $2.9 billion. Using a SPAC—a so-called blank check company—would help WeWork avoid a second go at a traditional IPO, instead putting the company on the stock market through a merger. That process would be faster and subject to less scrutiny.

Now, you could argue that a comeback is all relative when you’re so low your CEO’s face appears on the cover of a book called Billion Dollar Loser. Last February, T. Rowe Price declared its involvement in WeWork a “terrible investment” and a “debacle” that had caused “outsized headaches and disappointments.” For everyone else, it was the opposite: a total laughingstock in which each new revelation, like the fact that founder Adam Neumann sold the rights to the word We to the company for $6 million, created its own media cycle.

The new, midpandemic WeWork still has problems. Margaret Taylor, writing the bear case for WeWork in Wired U.K., notes that membership fell by 11 percent year over year in the third quarter of 2020, and global income was down from $934 million to $811 million.

But another way to look at it is: That’s not so bad for a company with a lot of month-to-month customers paying for something that’s about as out-of-fashion, at the moment, as karaoke machines. The company still had 542,000 memberships in the third quarter of the pandemic year, and if revenue dropped a little, losses dropped a lot, from $1.2 billion in cash burn in the third quarter of 2019 to $517 million in the third quarter of 2020.

CEO Sandeep Mathrani claims the company is on track to be profitable—profitable!—by the end of this year, that its offices in Asian markets such as China, South Korea, and Singapore are all but back to normal, and that December 2020 was the company’s best month for membership since December 2019. Mathrani, who took over in February 2020, has contained costs by laying off 8,000 employees and is closing locations in big cities like New York and Washington.

In December, Recode’s Rani Molla made the bull case for WeWork, gathering a number of optimistic projections about the future of flexible office space from firms like CBRE, CoStar, and SquareFoot, which saw demand for flexible space increase 15 percent in 2020. Molla also puts an optimistic gloss on WeWork’s membership shift, as month-to-month freelancers drop out and larger companies make up a growing share of the customer base.

That, WeWork says, puts it in prime position as vaccination gains steam and companies abandon huge corporate footprints in favor of smaller, more flexible arrangements. In October, the company told Fortune that it was seeing more one-time bookings and selling more All Access passes in the fall, as remote workers took the search for office space into their own hands. Going forward, meanwhile, hybrid office models could take advantage of WeWork’s many locations to give employees the privacy and collaboration space of an office without forcing them to commute to one central location.

Perhaps most importantly, companies testing the waters of office life can sign short-term deals with WeWork and settle tentatively into a ready-made setting instead of inking a 10-year lease for raw space with a more traditional landlord. “The name of the game today is flexibility,” Mathrani said in a statement provided to Slate.

On the other hand, journalists like the Wall Street Journal’s Eliot Brown who spotted WeWork’s absurdly inflated value early did so by comparing it to other companies that offered shared office space. And those companies are not exactly thriving. IWG closed 120 offices in August and announced last month it could close 100 more. The company also restructured to send subsidiary Regus into bankruptcy in order to get off the hook for almost a billion dollars in leases. Michael Donnelly, an analyst at Investec, told the Financial Times the comparison was not a favorable one to the more opaque operations at WeWork: “If you think it’s a tough environment for IWG, can you imagine how much tougher it is for WeWork, after a failed initial public offering and having jettisoned their chief executive?”

But perhaps that’s the WeWork success in 2020: drawing alongside other, successful normal shared office space companies. These days the company is boasting about sanitizer in the office and HVAC technology, not starting WeGrow schools. Someone else will have to reinvent the nature of We, but WeWork is not a basket case heading for bankruptcy. It remains the first name in coworking, in spite of it all. And one other thing WeWork has going for it? It still has $3 billion in cash on its balance sheet, enough to get the company through this year and next. If the future of office work is indeed favorable to flexible leasing, WeWork will at the very least be around to take advantage.

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