WeWork's dramatic fall has led to SoftBank CEO Masa Son questioning his own judgement, but one analyst still believes the bank will come out on top eventually with the massive investment in the reeling space-sharing company.
"Despite the huge embarrassment WeWork has been for SoftBank this year, we suspect SoftBank will have the last laugh when they bring the company back to market in a few years – bigger and profitable," Chris Lane, senior research analyst at AB Bernstein, said in a note Friday.
WeWork pulled its IPO filing in September after investors balked at its mounting losses and unusual corporate governance structure. Son initially valued WeWork at $47 billion, a number public market investors viewed as nearly four times too high. The CEO acknowledged making some mistakes in his investment strategy and said he questioned the viability of SoftBank's massive Vision Fund.
Still, Lane of Bernstein believes WeWork could still be disruptive to the existing real estate market so long as SoftBank restructures WeWork's business plan. The analyst compared WeWork's model to Starbucks where the profitability comes from big scale.
"We think investor should think of the basic business similar as being similar to Starbucks," Lane said. "While profitable, the scale of profits that can be generated from single site is small. Starbucks as a corporation only makes sense if you plan to open thousands of outlets."
SoftBank recorded a $3.4 billion writedown on its WeWork investment about two weeks after taking 80% control of the company with a new $5 billion financing package.
"We think the investment will ultimately prove to be value-creating," Lane said. "Post the restructuring, SoftBank will emerge with 80% of the equity of what we believe remains a very promising business."