Wework (NYSE: WE) stock has had something of a disappointing time on the public markets. 98% down and more than than if we measure from the peak. And that’s a great deal better than the total return from back when it was one of those unicorn stocks in the Softbank portfolio. It’s, perhaps, vaguely possible to think that the idea had some legs at one time. But then again any close analysis of the base economic model being employed showed that it was always a very weak - if not destined for disaster - proposition.
We have two things to think about here with WeWork. The first is tactical and short term. That’s not looking good - there’s the recent going concern worry for example: “As expected, Wework (NYSE:WE) included a "going concern" statement in their 10-Q filed after the close on August 8, which caused a major drop in the stock during after-hours trading.” Just for the avoidance of doubt a “going concern” statement is the directors saying that they’re not sure that the company will be able to keep going without more capital or some other major change. As the WSJ reports, the board changes have included those who know how to navigate through bankruptcy: “WeWork has brought in a slate of new board members experienced in restructuring troubled companies through bankruptcy to succeed three directors who resigned because of disagreements about the company’s governance and strategy.”
Wework stock price from Google Finance
There’s also that possibility that the economy will weaken, which will make the position even worse. Or, of course, as in this past 36 hours, decent CPI figures which make the possibility of recession recede.
But there’s the other, strategic, issue as well. Which is that the commercial, office, space business is going through a wrenching structural change. This work from home idea is reducing demand for office space tremendously. Wework of course has the space leased to it at the old prices. But will only be able to charge it out at the new prices as their short term tenants arrive.
We’ve even an example of how this works out in a commercial property recession, in Regis. And they struggle very badly in such, very badly indeed.
We rate Wework as likely to be a total loss for the equity. The only thing we’re still unsure about is when this is going to happen. Of course, we can be wrong in such things but that’s where we are now.
