🧐 What's going on with WeWork?

WeWork reports Q1 earnings, Ford's $12 billion loss in Brazil, Oyo seeks $600 million in loans, and some more updates.

May 21, 2021

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Read Time: 886 words, 4:25 minutes.

There’s so much to cover today so let’s get started.

First up,

Market Snapshot 📈

Sensex: 50,540.48 (+1.97%) ↑

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Bitcoin: $40,604.08

Top Stories 📰

1. WeWork reports $2.1 billion losses in Q1 📉

It's all been downhill for WeWork so far.

The embattled co-working company reported a disastrous first quarter after its losses quadrupled to $2.1 billion for the year as WeWork incurred massive restructuring costs and lost over a quarter of its membership.

Some quick stats -

WeWork's quarterly revenue dropped 50% YoY from $1.1 billion to $598 million.
Restructuring-related costs increased from $56 million in 2020 to $494 million as WeWork exited unprofitable locations.
The number of WeWork customers fell from 693,000 in March 2020 to 490,000 in March 2021.
The losses also included former CEO Adam Neumann's $500 million settlement in February.

Despite these declines, WeWork estimates its annual revenue to soar from $3.2 billion last year to $7 billion by 2024.

How did we get here?
Back in 2019, WeWork was aggressively leasing prime office buildings in major cities like London and New York as it was planning for its IPO. These investments were mainly funded by SoftBank, which reportedly invested $18.5 billion in the company, and helped WeWork's valuation reach $47 billion. But, when investors questioned Newmann's leadership and the company's excessive spending, WeWork's valuation was cut down to only $2.9 billion and eventually led to the company postponing its IPO.

Why it matters? Despite having a rough quarter and a botched IPO attempt, WeWork shows no sign of backing out. Under new leadership, the company now plans to go public once again in a $9 billion merger with BowX Acquisition Corp — a SPAC set up by Tibco founder Vivek Ranadivé. The deal will inject $1.3 billion cash into WeWork, along with the $483 million that BowX raised in its IPO.

2. Fordlandia: The project that cost Ford $12 billion 🚗

As Ford continues to make great strides in the US with its recent launch of an all-electric Ford F-150 Lightning pickup truck, the carmaker is struggling in South American markets, especially Brazil. The company recently announced the closure of three plants, delivering a heavy blow to over 5000 workers and 300 dealerships.

In the past decade, Ford reported a loss of almost $12 billion after abandoning production in Brazil's low-demand auto market. Of this amount, Ford burned $7.8 billion in accumulated losses and cash injections while it spent the remaining $4.1 billion to remove itself from its commitments. What's more, Reuters estimated that for every car Ford sold in Brazil, they accrued $2,000 in losses.

Ford accumulated these losses despite receiving $2.6 billion in tax subsidies — more than any of its rivals. And while the pandemic certainly strained Ford's finances, one other reason for this mishap was its strategic failure to transform its unprofitable compact cars into high-margin SUVs — a problem equally shared by its competitors Volkswagen AG, General Motors and Toyota Motors.

Why it matters? Despite Brazil's federal subsidies and its 35% import tariff meant to support local manufacturers, the country remains a large lossmaker for the world's car companies. The incident also emphasizes the risk that global automakers face in Brazil, which, despite its promising growth prospects, suffers from high tax, labour, and logistics costs.

3. Today’s big deals 🎉

Oyo to raise $600 million loan
Oyo Hotels is looking to raise $600 million in debt to bolster its finances after the second COVID-19 wave restricted travel and undermined its recovery plans. Oravel Stays Pvt, Oyo's parent company, is discussing a five-year term loan B that will be open to institutional investors for two weeks until June 2. JPMorgan Chase & Co. is arranging the deal, and the company will be hosting a lender call on May 21. Oyo is providing higher-than-usual interest rates on term loans and maintenance covenants to investors as it wants to serve its existing higher-interest loans with lower interest rate borrowings. The Ritesh Agarwal-helmed company is currently valued at $10 billion and is a part of SoftBank's portfolio.
BCV raises $1.3 billion to fund early-stage founders
Bain Capital Ventures (BCV), the venture capital division of Bain Capital, has raised $1.3 billion in new funds to support early-stage founders. BCV will invest the capital across two funds: a $350 million fund for growth-stage opportunities and a $950 million fund for seed and Series A deals. Last year, the company invested in 42 firms, of which 37 were either seed-stage or Series A-stage startups. BCV has also invested in 50 emerging managers to diversify its portfolio. The company plans to increase its investments in health tech, application software infrastructure, and e-commerce-enabled enterprise tech and fintech, including crypto. Some of the companies BCV has invested so far are Attentive and Redis Labs, currently valued at $2.2 billion and $2 billion, respectively.