Aborted IPO of global co-working space provider was symbolic of a period that witnessed market valuations of private companies turn frothy and that the period could be coming to an end, according to the US-based investment firm Capital Group's Chairman and Chief Executive Tim Armour. The head of one of the world's biggest asset managers, as reported by Financial Times, believed that the delayed IPO by WeWork may be the beginning of the end of a "glory period" for such companies that enjoy loft valuations as investors are scrutinising their prospects more meticulously.
Armour's comments come following the private valuations of large new age technology companies fall after listing on the stock market this year including Uber, Lyft, Pinterest etc. WeWork, which was valued at $74 billion in its last fundraising round from SoftBank, postponed its IPO amid issues related to its heavy losses, corporate governance and eccentric chief executive and founder, Adam Neumann. The investment bank advisers were pushed to ratchet down their price estimates before eventually calling off the listing.
Armour questioned whether one of the glory periods where companies operated without churning profits for a long period of time will continue. Interestingly, Oracle's chairman Larry Ellison, who is also a friend of SoftBank chief Masayoshi Son, had last week said, as reported by FT, that he thought Uber and WeWork were "almost worthless". The two companies are the key bets made by SoftBank's Saudi Arabia-backed VisionFund.
Ellison questioned the business model of Uber and how WeWork positioned itself in the market. Talking to entrepreneurs at his house he Uber's decision to acquire market share on the back of big losses was idiotic since there is a lack of user loyalty. He ridiculed WeWork's argument that instead of a real estate company, it is a technology company.
"WeWork rents a building from me, and breaks it up and then rents it," Ellison said, according to the financial magazine Barron's. "They say, 'We're a technology company, and we want a tech multiple.' It's bizarre."