Co-working office operator WeWork is technically not a publicly traded company yet, although it will be soon. And in the meantime, investors can buy shares of BowX Acquisition Corp. (NASDAQ: BOWX), the special purpose acquisition company, or SPAC, set to take it public. So, you can effectively invest in WeWork if you want to.
However, should you invest in WeWork is a far better question. Here's a look at the company's most recent results, and what you should keep in mind before deciding to invest.
WeWork: The good
I wouldn't necessarily call WeWork's second-quarter earnings report a great one, but there were certainly a few positive takeaways. At the end of the second quarter, WeWork operated 763 locations in 38 countries, with about 517,000 members.
WeWork reported 98,000 desk sales in the second quarter, nearly 13% more than it sold during the first quarter. It's also worth mentioning that these accelerated into the end of the quarter as COVID-19 restrictions were generally loosened throughout the U.S. Sales were 21,000 in April, 29,000 in May, and 48,000 in June.
As a result of the stronger desk sales, WeWork saw occupancy rise from 48% to 52% in the quarter. Management expects occupancy to rise to 57% at the end of the year based on roughly 40,000 net memberships already contracted to move in. This isn't great by any means -- after all, we generally consider an office REIT to have high vacancies if its occupancy dips under 90% -- but it's certainly trending in the right direction.
WeWork reported a partnership with Cushman & Wakefield and also reported that it plans to develop coworking spaces at a handful of Saks Fifth Avenue stores. It also is worth mentioning that CEO Sandeep Mathrani recently joined the board of outlet mall REIT Tanger Factory Outlet Centers, so it wouldn't be too surprising to see the two companies strike up some sort of business partnership.
That's where the good news ends. While some of WeWork's numbers are indeed heading in the right direction, the fact remains: This is a business that is hemorrhaging money with little path to profitability in sight.
For starters, WeWork lost $923 million in the second quarter and now has cumulative losses of $2.9 billion for the year. This is compared to a $1.04 billion loss in the first half of 2020 before the full effects of the pandemic were felt throughout the business. To be fair, $474 million of the loss consisted of non-recurring expenses such as impairments and non-cash expenses like depreciation, but it's still a hefty loss.
This is especially concerning considering that WeWork has about $1.6 billion in cash and borrowing capacity -- just a few quarters of runway.
Is it worth investing in?
WeWork is set to go public in the not-too-distant future via SPAC merger with BowX Acquisition Corporation. The exact timetable is unknown at this point, but the deal values WeWork at about $9 billion, inclusive of $1.3 billion in cash WeWork will get as part of the deal once it's finalized, which it sorely needs to bolster its balance sheet, as you saw in the last section. And shares of BowX are actually trading for slightly less than the SPAC's $10 net asset value, which is the price institutional investors are paying for shares of WeWork.
I tend to think of WeWork as an ultimate speculation play. If Mathrani is able to turn things around and return WeWork to its former glory, it could be a big win for investors who get in early. WeWork was valued in private funding rounds as highly as $47 billion in 2019, so it's fair to say there's significant upside potential if things go well. But that's a big if, so it's important not to invest in WeWork with money you aren't prepared to lose if it goes the other way.