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WeWork hits the wall

The announcement on Monday that WeWork would file for Chapter 11 in the US came as no surprise to the market. The share price has been under pressure for some time. The fact that companies have had difficulty in getting workers to head back into the office after Covid has made headlines for a few years now, which has hit the serviced office sector as well. The restructuring process should allow the company to work out deals to lower lease obligations, or walk away from some buildings, and then hopefully return to the market with a bounce in their step and a fresh start.

Despite the headlines surrounding the pre-IPO lofty valuations (some investments were made that put a $47 bn price tag on the firm) and the negative publicity over the failed IPO in 2019, the company did get to the market (through a Spac merger) with a $9 bn sort of value. This was well after the Covid lockdowns, and after IWG (Regus) had already hit the skids the previous year and parts of the business went through bankruptcy procedures as well. And yet WeWork hit the market with a $9 bn valuation?

The chart below shows that after the ‘pop’ in the price of the share when it came to market, it has been a case of lower lows and lower highs since then. Basic chart analysis was a strong warning of demand never beating supply here.

The chart below is a reindexed plot of IWG (Regus) and WeWork. They have diverged over the last year which is good news for IWG shareholders. One would hope, and as a previous user of Regus serviced offices in London that were perfectly good for my needs, that the company and the share price can hold up over time (or even improve!).

Keep in mind that stock market investors are very good at discounting their guess at future earnings. While serviced office companies have been out of favour since the pandemic, other firms are under the cosh as well. The chart below shows WeWork, IWG and Zoom (ZM), the company that was a market darling during the pandemic, but has since had a bumpy time of it. The reindexed chart shows the bubble in Zoom being popped over the last few years to the point that IWG looks better on a relative basis. The business case for Zoom seems strong, people like the convenience of using it for web enabled business chats and webinars. The market seems to want a ‘what have you done for me lately?’ response from the firm before marking prices higher though.

Gerry Celaya

Chief Strategist


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