Why investing in WeWork remains an act of faith
the soulless corporate offices of midtown Manhattan is a door in Greenwich Village wedged between a rowdy saloon and a burrito joint. The steady stream of hipsters and fashionistas passing in front of it is punctuated by professionals in “business casual” outfits with computer tote bags. Inside are stylish workspaces offering fruit-infused water and nitro coffee on tap. In one animated meeting, participants are sitting on beanbags and the floor.
There are four main areas of concern about WeWork’s viability. The first, and most glaring, is its lack of profits. The firm argues that this is explained by its huge investments needed to secure economies of scale. It says that mature locations are profitable. Revenues doubled during the first half of 2019 to $1.5bn, from $764m during the same period in 2018. Net losses rose more modestly to $905m during the first half of this year, up from $723m .
The third concern is whether a recession will push the company to bankruptcy. This remains a risk, as the firm has taken on $47bn in lease payments but has only $4bn in committed future revenues from customers. Here, it has some hedges. Its leases are typically held in special-purpose entities specific to one property . WeWork has entered into revenue-sharing leases with some landlords, which can offer countercyclical relief.
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