WeWork (WE), a company that provides flexible co-working space, went public through a SPAC merger with blank check company BowX. The company was founded in 2010 by Adam Neumann. WeWork was once a Wall Street darling backed by multiple high-profile institution investors such as JP Morgan, Goldman Sachs, and most notably SoftBank, one of the largest investment funds in the world. The company was valued at $47 billion back then and founder Adam Neumann decided to take the company public. However, right before IPO, Adam started to face a lot of criticism over its governance, business, and profitability. As the controversy continued to spread, Adam was forced to resign and the company withdrew its IPO plan.
The pandemic further crushed the company’s revenue as the lockdown spread across the world quickly and people started to work at home instead of going to the office. But this didn’t stop the company from moving forward. Despite all the turmoils that happened in the last few years, the company is still confident in turning the ship around and decided to go public with a valuation of “just” $9 billion, down 80% from its peak.
So what has changed since Adam Neumann stepped down, and is the company worth investing in at the current price? With SoftBank still being one of the largest investors, they brought on Marcelo Claure, SoftBank Intl CEO as the chairman and director to govern the company’s operation. Sandeep Mathrani, a veteran with turnaround experiences, joined the company as the new CEO in February 2020 as well. The company started trimming unnecessary expenses and in 2020, they saved $1.1 billion in functional expenses and $400 million in operating expenses.
They exited the non-core business that Adam Neumann brought to the company and shifted their focus from serving small and medium businesses to mainly enterprise customers. They increased customers’ commitment length to reduce fluctuation in revenue and started to offer more flexible plans to customers. The company also mentioned that enterprises are now leaning more towards flexible workspaces instead of traditional offices as the pandemic changed how employees work, and WeWork’s workspaces allow companies to better adapt a hybrid working model.
In Q4 2021, the company reported revenue of $718 million, representing a 9% increase from $661 million a year ago. Adjusted EBITDA was negative $283 million and net loss was $803 million. The occupancy rate inched up from 60% to 63%. It also announced the acquisition of Common Desk, a premier flexible workspace provider. The company expects to generate $3.4 billion in revenue this year with EBITDA turning positive later this year and an occupancy rate of 70%. The management team forecast revenue to increase to $7 billion in 2024 with an occupancy rate of 95%. The current estimated revenue implies an EV/sales of 1.4 which is reasonable for a real estate company. However, unprofitability and high debt load remain a serious concern, especially during a rising rates environment.
Despite the progress, the company has made, and a decent valuation, it is still hard to justify investing in the company now as profitability still remains uncertain and management still has a long way to prove themselves credible after all the company has been through. Not to mention the bad reputation and image the company is having right now. I believe we will get an even more attractive entry point in the future and if the company’s prospects and profitability continue to improve, then the stock may be worth revisiting.
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