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WeWork faces a “very tough road” to profitability, says Third Bridge

Published 2023-02-17, 09:15 a/m
© Reuters.  WeWork faces a “very tough road” to profitability, says Third Bridge
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Proactive Investors - An analyst at research firm Third Bridge said that WeWork Inc (NYSE:WE) faces numerous challenges to profitability as corporate headcount reductions have hurt demand for flexible office space.

WeWork reported a wider-than-expected fourth quarter loss despite the New York-based rental giant’s revenue beating Wall Street estimates.

“Corporate headcount reductions, particularly in tech, are going to hurt WeWork as companies dial down their requirements for flexible office space capacity,” said Omar Fahmy, an analyst at Third Bridge.

READ: WeWork shares tumble as it posts wider-than-expected 4Q loss

“This pressure is amplified by the fact that WeWork’s co-working facilities were built for smaller companies. Small and medium enterprises (SMEs) will be among the hardest hit during an economic downturn.”

The troubled company’s net loss for the 4Q amounted to $527 million, which included around $348 million related to non-cash expenses. WeWork said adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was negative $26 million, a 75% improvement quarter-over-quarter, and a $257 million improvement from the 4Q in 2021.

WeWork’s revenue for the quarter came in at $848 million, which was a little higher than Wall Street expectations of $847.34 million.

“WeWork is also facing greater competition as more landlords begin to offer flex work solutions in their buildings. This proximity can offer a more natural choice for current tenants,” said the analyst.

“Our specialists say WeWork faces a very tough road to profitability and may be overleveraged. It’s almost impossible to increase desk rates given the degree of competition and an industry-wide decline in occupancy rates.”

In a silver lining, the company, which went public in 2021, noted that for the "first time in WeWork’s history," it achieved an adjusted EBITDA profitability for December 2022.

Many of the same qualities that helped fuel WeWork’s breakneck growth are piling up as potential liabilities. In belt tightening, WeWork said last month that it planned to eliminate 300 roles across the countries. It will also exit from at least 40 US locations.

WeWork has forecasted current-quarter revenue to be between $830 million and $855 million, and adjusted EBITDA to be in the range of a $25 million loss to breakeven.

Third Bridge did not offer a rating or price target for WeWork shares.

Read more on Proactive Investors CA

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