WeWork Cites ‘Substantial Doubt’ That It Can Stay in Business
WeWork, which lost billions of dollars building and operating a global empire of co-working spaces, warned investors on Tuesday that it might not be in business for much longer.
“Substantial doubt exists about the company’s ability to continue as a going concern,” the company said in a financial filing.
The announcement did not come as a surprise. WeWork’s stock has been trading for pennies for months as investors concluded that the company’s financial obligations and losses had become overwhelming. The company went through a financial restructuring this year to buy more time for a turnaround effort, but soon after that, Sandeep Mathrani, the chief executive seen as the company’s savior, suddenly departed.
WeWork’s stock lost nearly a fourth of its value in trading after the announcement on Tuesday, which was issued after market hours along with the company’s quarterly earnings.
Four years ago, many in the real estate world and beyond believed that WeWork, under its charismatic chief executive, Adam Neumann, was destined for meteoric growth. They bet that individuals, small businesses and large companies would give up their traditional office space and choose instead to work from WeWork locations, which were sleekly designed and often served beer and kombucha to build a sense of community.
The company spent huge sums leasing and renovating hundreds of locations around the world, but it never took in enough customers to cover its rent bill. “This has never been a business model that worked,” Vicki Bryan, chief executive of Bond Angle, a research firm, said Tuesday.
‘Going Concern,’ Going Bust
Jason KaraianReporting on corporate jargon
The phrase strikes fear in the hearts of accountants. When a company publicly uses the term “going concern,” which a lot more are doing these days, it’s almost always bad news.
Here’s why →
A going concern is a company that will continue to operate for at least a year. But the term is rarely brought up unless a company is in trouble — that is, in cases where it has doubts it could continue as a going concern.
If managers or auditors believe that a company is at risk of going bust within 12 months, they are required to formally express that doubt in their financial accounts.
The dreaded warning, usually buried in the fine print, often leads to sharp declines in a company’s stock price, angst for creditors and worries among employees.
As companies have been upended by the pandemic, high inflation and pummeled by rising interest rates, going-concern warnings in company filings have spiked, according to Audit Analytics, a research firm.
Following the usual pattern, bankruptcies have ensued: More companies filed for Chapter 11 in the first half of this year than in any year since 2010, according to S&P Global.
Going-concern warnings cropped up recently in filings from Bed Bath & Beyond, Vice Media and Virgin Orbit, presaging their eventual bankruptcies.
Since assessing a going concern passes judgment about the future, that assessment is rarely black and white.
Plummeting cash flow and ballooning debt can be obvious signs of trouble, but nonfinancial factors can also sink a business, like legal issues, changes in regulation or the resignation of a key executive.
When Everton, a soccer club in England’s top division, had such a poor season that it risked being relegated to a lower, less lucrative league, it prompted a warning in its accounts.
A group of investors in Silicon Valley Bank is suing KPMG, the lender’s audit firm, because it did not raise doubts about a going concern in a filing a few weeks before the bank’s sudden and spectacular collapse.
There is “a lot of gray area” when judging whether a company is a going concern, said Denise Dickins, a former partner at an auditing firm who is now professor emeritus at East Carolina University and a board member at public companies.
But once a warning is issued, she said, “it’s almost a fait accompli that it’s going to go out of business.”
Shop Talk explores idioms of the business world. Want to nominate a word or term? Email us at [email protected].
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