The We Company (more commonly known as WeWork) recently made a decision to delay its IPO due to a lack of investor interest. This has resulted in a 78% drop in WeWork's private valuation in the past few days -- from $47 billion down to $10 to $15 billion, worrying current investors and stock options holders.
While this descent is bad news for WeWork's team, the real damage lies in what this loss in valuation signals for IPOs in general and for investors.
Looking at WeWork's balance sheet, the overvaluation is clear. Before the company shelved its IPO, it sat at a valuation 13 times higher than its profit-turning competitor, Luxembourg-based IWG (OTC: IWGFF). Comparing the two, WeWork is located in 111 cities, posted a loss of $1.9 billion, and has a revenue of $1.8 billion, yet it's valued at $47 billion. IWG, on the other hand, is much larger with locations in 1,000 cities, has a profit of $0.5 billion, has a revenue of $3.7 billion, and its valuation is only $3.7 billion.