WeWork’s fate uncertain after IPO fail

Oct 15th at 08:40
15-10-2019 08:40:00+07:00

WeWork’s fate uncertain after IPO fail

One of the biggest US-based coworking space operators has pulled out of its initial public offering in the United States, causing widespread surprise. VIR’s Ngoc Huong takes an insight on the company’s development strategy in the Vietnamese market and its impact on the country’s startup community.

WeWork has become one of the most high-profile startups in the world in less than a decade, after turning a single rented floor in New York City into a $47 billion global business. However, the company, which was about to begin its roadshow to get public investors interested in buying its shares, postponed its initial public offering (IPO) on the US stock market a few weeks ago in a highly unusual move after investors raised concerns about its business model and leadership structure. Experts suspected that the abrupt drop in WeWork’s valuation, to just a third of the $47 billion, had something to do with it.

It is no secret that WeWork is, for now at least, a money-losing business. Last year, losses jumped to $1.9 billion on revenue of $1.8 billion, thus for every dollar WeWork made, it was spending two. The company argued that this is explained by the huge investment needed to secure economies of scale. Representatives said that mature locations are profitable, with revenues doubled during the first half of 2019 over the same period in 2018, to $1.5 billion. However, net losses also rose, if more modestly, to $905 million.

Explaining why loss-making companies can attract investors, Cao Minh Duc, a senior at the due diligence department of consulting firm PwC Vietnam, said that all these companies claim that their business models will work somehow, someday, and that is when the profits will flow.

“WeWork is not an exception. In fact, many firms in Vietnam are also suffering loss-making periods, but investors keep pouring their cash into these models,” Duc told VIR.

It is nothing new to see startups burning cash that has been bestowed upon them by investors, and yet the future development strategy of WeWork in Vietnam’s market remains uncertain after it had to postpone its IPO.

Despite WeWork Southeast Asia's spokeperson, confirming to VIR that it was business as usual, the company’s development plan was not disclosed.

“The fundamentals of our business remain strong in Vietnam and we are committed to continued success. As we enter our next phase, we’re confident in our ability to continue delivering an unparalleled experience for all our members,” she said. However, she declined to release anything on the future plans which WeWork had for expanding in Vietnam.

Meanwhile, an expert specialised in the coworking business, revealed that WeWork has mapped out some other locations which will be developing its coworking space in Vietnam in the time to come.

“No one knows the future of those locations. After the failure of the IPO, we are not sure if WeWork will keep on with its investment strategy in Vietnam. However, there is one thing that can be sure, WeWork may have to restructure its business in key markets, including Vietnam,” the source said.

In March, WeWork opened its first Vietnamese location in Ho Chi Minh City’s District 4, which was claimed to add to the company’s rapidly growing presence in Southeast Asia. A few months later, WeWork leased two other space offices in the heart of the city.

According to Turochas T. Fuad, managing director of WeWork Southeast Asia, the foreign inflows have been pouring into Vietnam.

“We are keen on the expanding middle class and Ho Chi Minh City’s efforts to become a smart city by 2020,” Fuad said, adding that WeWork saw immense business potential to develop in Vietnam.

Fuad did not reveal the capital which WeWork plans to invest in Vietnam but disclosed that the firm had reserved a sum of $500 million to pour into Southeast Asia and South Korea.

At the end of 2018, Hanoi and Ho Chi Minh City had 45 coworking spaces operated by 20 companies. Domestic providers include Toong, UP, CirCO, Dreamplex, Start Co-working Campus, Saigon Hub, VSV Corner (former Hatch! Nest), 5Desire, and HubIT.

From the foreign side, the Vietnamese coworking business saw participation by the WeWork, the UK’s Regus, Singapore’s KLOUD, South Korea’s CEO Suite, and Atlas from Hong Kong.

According to Nguyen Hoa Binh, founder and chairman of NextTech group, the WeWork case represents a harsh wake-up call for young companies that are nowhere near profitability.

“The startup ecosystem will become a playground for financial companies instead of technology entrepreneurs, who eventually should be the core players of the game. If companies, particularly tech startups, spend most of the time and capital on attracting financial investors rather than improving their technology, in the end they will gain nothing but failure,” Binh said.

Looking on the bright side, Justin Hall, partner at Golden Gate Ventures, a Singapore-based early stage venture capital firm, told VIR that the fallout from WeWork will have no significant effect on Vietnam’s startup ecosystem.

“There is an extraordinary number of opportunities available to Vietnamese entrepreneurs, across a diverse range of verticals such as social commerce, logistics, and fintech,” Hall emphasised.

Pham Nam Long, CEO of Abivin, a startup that provides AI-powered supply chain optimisation, believed that Vietnam is at a special threshold of change, and even though the public market is now more sensitive to capital, the vibrant startup scene in Vietnam still attracts many foreign investors.

“In the case of Vietnam’s investment climate, authorised agencies need to be aware of some dirty business tactics to prevent invisible hands from distorting the market. They should also regulate policies to protect the rights and benefits of both local firms and investors alike,” said Long.

vir



RELATED STOCK CODE (2)

NEWS SAME CATEGORY

Strict penalties needed to fight fraudulent property firms

It is necessary to develop strict penalties to combat those operating fraudulent real estate businesses to protect the legitimate rights of consumers and legitimate...

HCM City housing prices rise on shortage of new supply

Housing prices continue to rise rapidly in HCM City because of a shortage of new supply, increasing population and lack of transport infrastructure in outlying...

South Korean paid million dollars to own real estate in Vietnam

Vietnam is second after the United States on the list countries where South Korean people and enterprises have spent a total of $440.11 million on buying real...

Economic zone draws investment from the manufacturing sector

Industrial property in the Northern Key Economic Zone (NKEZ) saw strong development in the third quarter of this year, according to Jones Lang LaSalle firm (JLL...

Viet Nam real estate still an attractive prospect

Viet Nam's real estate market continues to attract foreign investors because of its growth potential, especially Korean investors, according to real estate...

New construction keeps office rents in HCMC in check

New supplies of offices for lease in HCMC in the third quarter of this year kept office rents, especially Grade A offices, from rising further, according to...

SORA gardens II - Luxury apartment to be launched in Binh Duong New City

Two Japanese urban developers Becamex Tokyu and Mitsubishi Estate Residence have established the joint venture BTMJR Investment to develop SORA gardens II project...

Oakwood forays into capital with debut of Oakwood Residence Hanoi

Oakwood, a wholly-owned subsidiary of Mapletree Investments, has announced the official opening of Oakwood Residence Hanoi, marking the brand’s entry into the...

Condotels look to legal framework for revival

Positive signs have been seen in Vietnam’s condotel arena after more than two years of downturn as consumption in the third quarter of this year was reported at 86...

Tourism SOE trio makes for IPO gold

The divestment of three state-owned tourist companies is expected to present a vast opportunity for foreign investors, with groups already owning many properties in...

Real estate stocks

Construction stocks


MOST READ


Back To Top