WeWork is continuing its expansion in the ASEAN region, despite down-sizing elsewhere. Is its ASEAN expansion yet another misstep, or part of a grand recovery plan?
Suffice to say, 2019 has not been a good year for WeWork. The tech-meets-real estate firm suffered a catastrophic fall from grace. Its failed IPO bid is a cautionary tale, putting the firm in the same breath as Theranos and Uber in terms of Silicon Valley folk law.
One of the year’s most highly anticipated IPOs was derailed in spectacular fashion within 24 hours of the initial S-1 filing. Company documents revealed massive financial irregularities, perpetrated by WeWork’s eccentric founder and CEO Adam Neumann and his family.
Like many other Silicon Valley players that burn through billions of dollars in the quest for global expansion (think Uber and Lyft), WeWork didn’t have a clear roadmap towards sustained profitability. That, combined with the evaporation of investor confidence in the CEO, left the company in a dire situation.
The company is under new leadership
Currently valued at less than one-sixth of its original US$47 billion evaluation, the coworking space pioneer is in full overhaul mode. Gone are the days of rampant expansion at any cost—Neumann’s aggressive philosophy.
WeWork expanded to over 625 locations across 100 cities between 2010 and 2019, at a cost of roughly US$2.5 billion a year.
That push also included an almost half a billion-dollar investment in the ASEAN region. Right now, WeWork has a presence in 19 locations including Singapore, Malaysia, Indonesia, the Philippines, and Vietnam. With vibrant startup ecosystems, cities like Singapore, Jakarta, Kuala Lumpur, Bangkok, Manila, and Ho Chi Minh City were all key growth targets.
The company’s two new co-CEOs – Artie Minson and Sebastian Gunningham, both company insiders, are taking a more conservative approach that aims to cut expenses, shore-up finances, and restore WeWork’s public image.
But while most global expansion plans are on the backburner, WeWork seems to have a different script in mind for the Southeast Asian market.
Is it business as usual in Southeast Asia?
A WeWork spokesperson reiterated to ASEAN Today that its current focus in Southeast Asia, “lies in sustainable growth and our path to profitability”
“Our top priority has always been and will continue to be, delivering an exceptional experience for our members every day. It is business-as-usual for us,” they added.
Continuing its “business as usual” model would put the regional wing of WeWork squarely at odds with its Western markets. The company is rapidly scaling back operations, laying off 2,500 employees of its 12,500 strong workforce and shedding non-core businesses.
WeWork Southeast Asia is still in its early stages of growth
This foray into the region is still in its early stages, having begun only as late as Q3 of 2018. The firm’s only entered the Thai market, for example, in early 2019, a few months before the disastrous IPO filing in August. The firm does not appear to be planning an end to expansion in the region, at least not yet.
“The fundamentals of our business remain strong in Southeast Asia and we remain committed to the continued success locally,” claimed the company spokesperson, while citing the unveiling of two brand new WeWork locations in one of its hottest markets, Singapore.
Since first opening shop in Singapore in 2018, WeWork has expanded to 10 different locations in the teeming metropolis. In December, another two new locations will be added to that list, bringing up the number of available co-working spaces in the city-state to 12.
Softbank’s support has pulled the company back from the brink
But there are still a lot of unknown variables in WeWork’s future. The fallout of the IPO debacle is still ongoing, with the New York State’s Attorney reportedly opening an investigation into the firm. But the investigation will likely centre on the Neumann’s actions.
More important to the company’s future are the long-term plans of its biggest backer, Japan’s SoftBank. Its founder, Masayoshi Son, is one of the world’s biggest investors in tech startups and had pumped in over US$11 billion into WeWork before August 2019.
With so much at stake, SoftBank could not back out when things went belly-up for WeWork in the IPO filing. Son played a central role in the removal of Neumann from the helm and SoftBank’s US$8 billion cash injection into the firm as part of the deal that will put more influence in Son’s hands.
WeWork is looking at ways to attain profitability, and fast
Son has already stated that he expects WeWork to generate a profit as early as 2021. Softbank has assigned one of its top executives, Marcelo Claure to WeWork to oversee a period of drastic restructuring as part of this initiative.
WeWork’s renewed focus will be on functioning as a traditional real estate company. The firm is outsourcing janitorial services to other firms like JLL. Other expensive non-core projects, like the fancy “WeGrow” school in New York (a pet project of Neumann’s wife) has been shut down altogether.
Claure, who’s past experience includes a stint as the CEO of Sprint, outlined a six-stage roadmap to profitability during his first interaction with the WeWork employees. One of the biggest takeaways from the roadmap is the refocus on the core business of providing high-quality workspaces to enterprise-level customers.
However, the map to profitability did not curtail all expansion efforts. With potential ramifications for the Southeast Asian market, the plan outlines targeted growth in key markets. Instead of unplanned global expansion, WeWork will look to expand aggressively in select markets, while withdrawing from others with less than favourable prospects.
The ASEAN region could be key to WeWork’s revival
Judging from the recent flurry of openings in Vietnam, the Philippines, and Singapore, it is safe to assume that the ASEAN region will be a focal market for WeWork and the firm could enjoy success here. The size of the Southeast Asian market, and its rapid pace of economic growth, makes it a prime target for expansion.
The region is a hotbed for global brands and vibrant new startups, all of which need well-designed, high-quality workspaces with “positive energy.” The demand for office space is clearly rising, which is why local coworking space startups like KMC (Phillippines), EV Hive (Indonesia), and JustCo (Singapore) are growing in the region.
These smaller local firms largely cater to startups. There may be a market opportunity for WeWork to target the larger enterprise segment. Since that segment is largely unexplored territory, and smaller startups lack the access to capital WeWork enjoys, the firm has the potential for long-term in the market.
First, WeWork needs to stabilize its global operations. The support from Son and Softbank has lent an air of much-needed stability to the beleaguered company through large cash injections.
While there the Softbank war chest runs deep, it is not bottomless. The group has suffered some early setbacks in attempts to raise fresh capital for a new global investment fund. That is quite understandable, given the current investment climate and the cloud of scepticism surrounding startups and their valuations.
It is too early to write off WeWork. The ASEAN region offers the firm a second chance with which to rebuild. The next couple of years will be crucial for the company as it looks for profitable growth.