WeWork Won’t Work Anymore? Firm Sounds “Substantial Doubt” To Stay In Business
WeWork Inc (NYSE: WE), the US-based office space provider that was once valued at $47 billion by SoftBank, has raised concerns about its ongoing viability for the first time. In its recent second-quarter earnings report, WeWork fell short of the guidance it provided three months ago and expressed uncertainty about its ability to remain operational.
In the second quarter of 2023, consolidated revenue reached $844 million, marking a 4% rise compared to the previous year. The net loss for the same quarter amounted to $397 million, showcasing a jump from a loss of $635 million when measured against the net loss in the preceding year. Similarly, the adjusted EBITDA for the second quarter of 2023 stood at negative $36 million, compared to negative $134 million from the previous year.
The company outlined its future prospects, which hinge on a series of strategic initiatives over the next 12 months. These plans involve further restructuring efforts and a search for additional capital. David Tolley, the interim CEO following Sandeep Mathrani’s departure in May, attributed the underperformance to challenging economic conditions and shifts in the property market.
But what stood out from the firm’s earnings report is its comment on having “substantial doubts” in the company’s ability to continue as a going concern.
“As a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s plan to improve liquidity and profitability over the next 12 months,” the company said.
Following the news the company fell 5.5% on Tuesday and plummeted as much as 24% in after-hours trading.
Factors such as oversupply in the commercial real estate sector, intensified competition in flexible office spaces, and macroeconomic fluctuations led to higher member turnover and softer demand than anticipated. As a result, WeWork experienced a slight decrease in its membership numbers.
The announcement comes alongside major changes with the firm’s board composition. WeWork installed Paul Aronzon, the Founder of PSA Consulting; Paul Keglevic, a former CEO, CFO, and CRO of Energy Future Holdings; Elizabeth LaPuma, previously the Managing Director and Head of Balance Sheet Advisory at UBS; and Henry Miller, a Co-founder and retired Partner of Marblegate Asset Management, LLC, as new additions to its board of directors, effective immediately. The board additions come on the heels of Daniel Hurwitz, Vivek Ranadivé, and Véronique Laury stepping down from the board.
“These new director appointments bring a fresh perspective and renewed commitment to the Board and our company,” said Tolley. “The deep financial expertise and robust business experience that each of our new directors bring to the table will add immense value as we double down on sustainably reducing costs, continuing to grow memberships and revenue, and strengthening our balance sheet.”
Since its unsuccessful attempt to go public in 2019, WeWork has been revamping its business model to reduce cash consumption. This transformation was prompted by co-founder Adam Neumann’s departure. The company has already made significant changes, including exiting or renegotiating 590 leases, resulting in a reduction of approximately $12.7 billion in future lease commitments. Tolley emphasized the company’s commitment to optimizing its real estate portfolio.
Currently operating in 33 countries with 610 locations and serving 512,000 members, WeWork reported a 3% year-over-year decline in memberships and a drop in building occupancy from 73% to 72%. In the second quarter, the company’s consolidated revenues increased by 4% to $844 million, reaching the lower end of its previous projection. Although net losses nearly halved from the previous year, an adjusted loss of $36 million before interest, tax, depreciation, and amortization fell significantly below investors’ expectations.
WeWork’s stock had already experienced a 95% decline over the past year, and after-hours trading caused it to plummet by another third to 14 cents. Meanwhile, the company’s 2025 bonds were last traded at 34 cents on the dollar.
Just three months prior, WeWork underwent a financial restructuring that reduced its debt load by approximately $1.2 billion. As of the end of June, the company possessed $680 million in liquidity, including $205 million in cash. WeWork highlighted that its ability to continue as a going concern relies on several key actions, including negotiations for more favorable leases, cost control measures, and the exploration of fresh capital through debt or equity issuance, or asset sales.
Information for this briefing was found via Edgar, Financial Times, and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
