Earlier this week, the New York Stock Exchange (NYSE) issued WeWork a non-compliance warning because its share price has been stuck at $1 for the past 30 trading days. Effectively, WeWork has six months to revive its share price lest it be delisted from the exchange.
Even with the six month runway ahead of them, WeWork’s financial issues are so deep-seated that the company is facing an uphill battle. WeWork’s share price has fallen 90 percent from its market value of $9 billion since it listed in March 2021, a huge departure from the success of its heyday. Once upon a time, WeWork’s rapid growth and disruptive business model made it a popular investment opportunity for venture capitalists, which led to an eye-popping valuation of $47 billion back in 2019. But ultimately, WeWork’s initial strategy is what catapulted the company into this mess. WeWork’s business model involves leasing office space, renovating it, and then subleasing it to individuals and companies at a premium. However, the cost of renovating and leasing these spaces has been higher than the revenue that they are generating, which has led to significant losses for the company. Plus, WeWork borrowed a lot of money to finance its rapid expansion, which has led to a high debt-to-equity ratio. This has made it difficult for the company to be profitable and attract new investors. Add in the fact that WeWork’s business model has been heavily reliant on long-term leases (making them vulnerable to economic downturns), and the prognosis ahead isn’t looking so good.
That said, WeWork’s share price may increase for a variety of reasons, including the conclusion of a significant financial restructuring announced in March, progress toward finally reaching profitability, and enhancements to its revenue and cash position via a number of strategies detailed in a recent letter from CEO Sandeep Mathrani to shareholders. As far as the NYSE warning is concerned, WeWork promised to respond to the NYSE “affirming its intent to cure the deficiency” within 10 business days of receiving the notice.
