WeWork, the shared office company, has finally made its debut on the public markets, nearly two years after its first attempt to IPO in 2019. Back then, the company had to withdraw its IPO plan in dramatic fashion due to a cold reception by investors towards their eccentric founder & CEO, Adam Neumann, as well as the opaque and high risk financial profile of the company. This eventually led to the removal of Neumann.

A new start?

WeWork became a public company today through a slightly different mechanism than normal, through a transaction with a listed special purpose acquisition company (SPAC). These companies are specifically created with the purpose of raising money from investors and then acquiring or merging with private companies such as WeWork. In this case, BowX Acquisition Corp merged with WeWork, resulting in the “WE” stock ticker trading on the New York Stock Exchange.

The transaction valued WeWork at $9 billion, a world away from the peak valuation of $47 billion that WeWork had earned itself from private investors back in 2019 before the IPO collapsed and the pandemic derailed the company’s revival efforts.

Risky business

One of the main reasons WeWork failed in 2019 was due to the investor community not buying into the company presenting itself as another big successful US tech firm, and instead viewed WeWork as another real estate leasing company. In reality, WeWork has always entered into long-term lease agreements with property owners, and then rented the (refurbished and trendy) office space to tenants on short-term and flexible agreements. This is a business model and mismatch that was not well received by prospective investors, in that WeWork’s costs and liabilities are locked for years in the long-term contracts of the buildings, whilst their income from their tenants is usually only secured for months at a time in short-term contracts.  

As we emerge out of the pandemic and the future of work looks increasingly hybrid or remote, WeWork is sitting in a precarious position. The financial results for Q2 2021 indicated that the WeWork occupancy rate was only 55%, and the company suffered a net loss of $888 million for the quarter alone. Whilst revenues are expected to recover and grow as the impact of the pandemic fades, expectations for when the company will turn a positive profit seem very distant. Will we see WeWork on the list of the most shorted stocks in the coming months?

Overall, whilst there is a redemption story in WeWork finally reaching its goal of becoming a public company, this remains a high risk company operating in a challenging sector so we are wary of the stock. We would recommend caution and to observe how the story unfolds from the sidelines of the market.

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