WeWork (NYSE: WE) stock should rise 4,000% at the open WE stock’s 40x price rise is not some miracle of the business idea suddenly coming right - this is a purely technical matter. No investors will directly gain from this, it’ll not fatten any wallets. It is true that in theory this move should be value additive overall but even that’s not certain. The effect of these constructed higher nominal stock prices can just be that more sell in fact.
We also think this could be whistling past the graveyard - as we’ve said before about WeWork: “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.”
As we say that’s an opinion, not a fact, but there we are.
WeWork stock price from Google Finance.
The specific problem to be solved today is that WeWork is in danger of losing the NYSE listing. It’s necessary to maintain a minimum $1 bid price to stay on the major markets. This is somewhere between fashion and culture - penny stocks are just viewed as not being serious. So, something must be done.
That something is simply to declare 40 old pieces of stock as one new share - a one for forty reverse stock split: “WeWork WE.N said on Friday it will proceed with a one-for-forty reverse stock split of its outstanding class A and class C common stock, which was previously authorized by shareholders. The reverse stock split will be effective at 4:01 p.m., Eastern Time, on September 1, 2023.” That’s after close on Friday, then Labor Day, so this morning’s open is when the price change takes effect.
This doesn’t change the market capitalisation of the company, it just changes the number of shares that make it up. Therefore the price of each individual share reacts mechanically - up 4,000% or 40x. It also doesn’t sort out any of the business problems, other than just that one of keeping the NYSE listing. If only the other problems were as simple to solve, eh?
