WeWork (NYSE: WE) initially aimed to publicly list on the markets back in 2019. However, the company was then wrestling with massive losses as well as management disputes and the ongoing pandemic. WE stock finally went public in October 2021 and is currently valued at a market cap of $6.2 billion.
Let’s see why I’m bullish on the long-term prospects of WeWork right now.
A look at WeWork’s financials
WeWork’s revenue almost doubled from $1.82 billion in 2018 to $3.45 billion in 2019. However, the COVID-19 pandemic decimated companies part of the commercial real estate segment, including WeWork, as its sales fell to $3.41 billion in 2020. In the last four quarters, the company’s sales fell further to $2.66 billion.
Alternatively, as the global economies reopen and employees return to the office, WeWork should benefit from higher sales going forward. Its sales in Q3 rose 11% year over year to $661 million, compared to $593 million in the year-ago period.
Its adjusted EBITDA loss stood at $356 million, narrower than its prior-year loss of $449 million. The company’s sales stood at $230 million in September, the fifth consecutive month of revenue growth and the highest monthly sales in 2021, which indicates the company is on the road to recovery.
What I like about WeWork
WeWork ended Q3 with 764 locations across 38 countries. It supports 932,000 workstations and 546,000 physical memberships. The company’s gross desk sales totaled 155,000 or 9.3 million square feet sold. The new desk sales totaled 84,000 in Q3 while physical occupancy rose to 56%, up from 50% in Q2 of 2021.
If we include the 30,000 net memberships contracted to move in, physical occupancy increases to 60%. WeWork’s all-access memberships rose to 32,000 in Q3, up from 20,000 in the quarter ended this June, representing an additional four percentage points of occupancy.
While WeWork’s cash balance fell to $1.2 billion at the end of Q3, from $1.6 billion in the June quarter, its free cash flow losses narrowed from $649 million to$430 million in this period.
In 2021, WeWork has focused on reducing operating expenses which has fallen to $2.1 billion in the last 12-months compared to $3.95 billion in 2019.
In the first two quarters of 2021, WeWork has completed 150 lease exits and 350 lease amendments resulting in cost savings of $400 million. WeWork’s lower cash burn rate will provide the company with the required financial flexibility to tide over an uncertain macro environment.
Risk’s to WeWork’s share price
WeWork remains unprofitable, and given its current cash burn rates, the company might have to raise capital within the following year. The Omicron variant also weighs heavily on companies part of the commercial real estate vertical, making WE stock a high-risk bet if lockdowns are reimposed once again.
WeWork’s growth potential
WE stock is trading at a trailing 12-month price to sales multiple of less than 3x, which is quite reasonable, especially if offices reopen in the next 12-months enabling the company to grow top-line at a rapid rate. There is a good chance for WeWork to outpace the broader markets in 2022 and is a top stock for those with a high-risk tolerance.
Contributing Writer at MyWallSt
Aditya took an interest in the stock market during the financial crash of 2008-09. His favorite stocks include Roku and Apple as both companies enjoy a leadership position in their respective verticals and are poised to beat the broader markets consistently going forward.