Turns Out WeWork Didn’t Work After All

Turns Out WeWork Didn’t Work After All
Stéphane Renevier, CFA

about 1 month ago2 mins

What’s going on here?

WeWork filed for bankruptcy, serving as a stark reminder of the importance of doing business within your means.

What does this mean?

Once the darling of the startup world, WeWork was revolutionizing office work, boasting office spaces on every desirable street and a valuation of $47 billion. But the company was soon weighed down by colossal losses and its disaster of an initial public offering. Stir in increasingly pricey leases and the habit-changing effects of the work-from-home movement, and WeWork ended up laden with debts verging on $19 billion and profit firmly in the red. Now the company – once the biggest office tenant in Manhattan – has been forced to file for bankruptcy. Mind you, that’s not necessarily the final curtain. The bankruptcy filing could allow WeWork to shed its expensive, hard-to-cancel, cumbersome contracts at a lower cost, clearing space for a major shake-up. In fact, the firm’s already worked out restructuring deals with its creditors, trading mountains of debt for stakes in the reorganized company.

WeWork financials
Source: Statista

Why should I care?

For markets: Not the first, not the last.

WeWork’s the most infamous failure in the commercial property industry, but the firm has plenty of company. After the pandemic triggered a seismic shift in working patterns, office spaces cleared out. And with today’s ramped-up interest rates, it’s more expensive for businesses to pay rent. That combination has already crumbled coworking companies, forcing Knotel and subsidiaries of IWG to file for bankruptcy in 2021 and 2020 respectively.

WeWork stock
Source: Google Finance

The bigger picture: The heydays are over.

WeWork once epitomized the allure of charismatic entrepreneurs, hailed for using cutting-edge tech and visionary strategies to transform traditionally mundane industries. After all, charm and ambition can attract investors on the lookout for high risk and high reward when money’s cheap, maybe even bringing in the coveted “unicorn” status. But you can’t compete without solid financial foundations – especially now interest rates have made it prohibitively expensive to access extra cash.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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