Zach Aarons, MetaProp, cofounder and partner
“I think if they are able to replace Adam with somebody who is focused on corporate governance as a priority, that will help allay some of the concerns that the public equity investors had,” Aarons said.
WeWork will name two current execs, Sebastian Gunningham and Artie Minson, as co-chief executives, according to a statement from the company. Gunningham came to the company from Amazon, while Minson came to WeWork from Time Warner Cable and was previously AOL’s CEO.
“I think the other concerns that they had, which you can’t just solve by bringing in a new CEO, is that the financials of the company as revealed in their S-1 did not show a path to profitability anytime soon,” he said.
Indeed, the S-1 had showed average revenue per membership has declined, and the company said in the filing it is expected to keep falling as it expands to lower-priced overseas areas. It had negative operating cash flow of nearly $200 million in the first half of the year, up from negative $84 million in the first half of 2018.
The potential “levers” WeWork called out in the filing to turn profitable mostly involve slowing expansion. Other ideas it floated included adding new, higher-margin products and services to sell to existing members, as well as its “Powered by We” business — where it helps other companies design office spaces.
Aarons noted companies like Zoom or Slack that have made it to public markets this year as points of comparison. Video-conferencing company Zoom has seen its shares surge from its IPO price since April.
Messaging service Slack opted for a direct listing instead of conventional IPO, meaning it didn’t sell new shares. It hasn’t fared as well, though — despite an early pop, it’s now trading below its listing reference price and its shares plunged early this month when it forecast wider-than-expected losses.
Demonstrating a path to profitability will be a “major task for WeWork,” Aarons said.
Aarons doesn’t consider the replacement of Neumann as a “silver bullet,” but he thinks it is a move in the right direction.
“If you look at half of the story as not being able to demonstrate a path to profitability and half of the problem as corporate governance issues, this does solve half of the puzzle.”
Aarons thinks that this will likely have an impact on other flexible office providers, but that this trend is “accelerating, not decelerating.”
MetaProp has invested in Spacious, a coworking startup that WeWork acquired earlier this year, and invests exclusively in proptech and other real estate startups. Their investments may see some benefit if WeWork is able to shift course, putting a better light on private startups in the real estate space.
“As we too often see nowadays in our society, the pendulum swings, and the pendulum swings massively in either direction” Aarons said. “I think fundamentally, it’s always somewhere in the middle. The truth.”