SoftBank is increasing its investment in WeWork and will investing a further $2 billion USD in the fast-growing coworking company, but the deal, which is expected to be announced on January 10th, is smaller than a $16 billion USD investment that was under consideration.
SoftBank is continuing its commitment to WeWork even as the complex relationship between the two companies is under growing scrutiny. The new investment, which is coming from SoftBank itself and not its Vision Fund, values WeWork at $47 billion USD, and will reportedly bring SoftBank’s total investment in WeWork to about $10.5 billion USD.
SoftBank has multiple investments in WeWork and much of the capital that has been invested in WeWork is from the SoftBank Vision Fund, which is largely backed by the Public Investment Fund of Saudi Arabia. Yet after the killing of journalist Jamal Khashoggi, many in the technology industry are reassessing their willingness to take money from the kingdom.
WeWork has emerged as one of the most valuable private companies, even as it continues to lose money. Although WeWork is the clear leader in the emerging coworking industry, it is essentially a commercial landlord, sprucing up office space and leasing it back to commercial clients.
As well as individual clients, WeWork is expanding its enterprise business, leasing large offices to companies like Amazon, Pepsi and Salesforce. In August 2018, the company reported that it had more than 250,000 paying members, more than double the figure from a year earlier.
Yet WeWork continues to spend far more than it makes and many financial analysts believe that it is wildly overvalued after the company reported a loss of $723 million USD for the first half of 2018, as it built new coworking spaces around the globe.
As recently as December, SoftBank was reportedly considering a larger investment in WeWork, and under one scenario, SoftBank would have spent $10 billion to buy out all of WeWork’s other investors, and then injected $6 billion more in the company for its expansion.
But various factors led to a smaller deal including market volatility, Softbank’s losses after its mobile unit IPO in Japan, and the fact that other WeWork investors were reluctant to sell their shares. The result was a deal, for SoftBank to invest $2 billion more into WeWork.
SoftBank’s total investment in WeWork during the last six months is about $6 billion USD and $5 billion of the recent investments will go to shore up WeWork’s balance sheet. Much of those funds will be available to WeWork this year, but as much as $1.5 billion USD will be held back until 2020.
About $1 billion of the new investment funds will be used to buy shares from investors and employees, who want to cash out their shares. Investors and employees who do sell stock to SoftBank will have their shares valued in the mid-$50s, giving WeWork an implied valuation of just over $20 billion.
As WeWork continues its costly expansion plans, its relationship could become even closer as SoftBank continues to invest in WeWork to ensure that it can meet its business goals. As one analyst noted in a report, “SoftBank will have to continue to give WeWork more money in the future in order to justify the money they’ve already invested in the company.”