Remember WeWork? Sure, you do. It was one of my great laughs in the pre-pandemic year of 2019. I saw the WeWork disaster coming a mile away, I warned you about it, and its IPO collapsed faster than you can say Adam Neumann (Oh, THAT WeWork). Now sweeten the pot with a Special Purpose Acquisition Company (SPAC) called BowX Acquisition (NASDAQ:BOWX). BOWX stock is currently just shy of $10 after a rally up to the $11 level in February.
So, WeWork. It was one of my great laughs in the pre-pandemic year of 2019. I saw the WeWork disaster coming a mile away, I warned you about it, and its IPO collapsed faster than you can say Adam Neumann. (Oh, THAT WeWork.)
Well, WeWork is back, baby. Well, it wants to be back. This time it has big plans to go public through a Special Purpose Acquisition Company (SPAC) called BowX Acquisition (NASDAQ:BOWX). BowX is sponsored by Bow Capital, led by Vivek Ranadivé and Murray Rode.
BowX Acquisition opened for trade March 24 at $9.89 per share, slightly below its nominal value of $10. BowX’s market cap is currently about $473 million. But that will be inflated by the private investors (PIPE) it brings to the party and the valuation it places on its target, currently $9 billion including debt.
SPACers Can’t Be Choosy
Let’s be real — if you buy a SPAC that doesn’t know what it’s buying, you’re buying air.
In this case you’re buying celebrity, too. While Micron (NASDAQ:MU) CEO Sanjay Mehrotra is an advisor to BowX, reporters have zeroed in on another name in the group, Shaquille O’Neal. Shaq has been getting pushed as a business name since 2015, when he sold his rights to Authentic Brands. This has made him a big winner at Papa John’s (NASDAQ:PZZA), which needed a new spokesman with skin in the game.
But Shaq isn’t the story here. The story here is Neumann, the founder of WeWork, who had lead investor Softbank (OTCMKTS:SFTBY) over the proverbial barrel. He’s getting $500 million in SPAC cash for just some of his shares. He’ll retain a 9% stake, although (like Uber (NYSE:UBER) founder Travis Kalanick) he won’t get a board seat or further role in the company.
What You Get
What you get if you stay in BowX is one of the worst performing businesses to ever come to the public market.
WeWork lost $3.2 billion last year, for which it blamed Covid-19 (subscription required). It lost $3.5 billion in 2019, pre-Covid. The 2020 loss came despite slashing capital spending from $2.2 billion to $49 million. Occupancy rates on its projects fell during the year, from 72% to 47%.
But wait, there’s more. WeWork held those losses down because it set up separate companies to run each lease. As a result, walking away was easy, although would you want to do business with such folks again? Also during the year its chief competitor, International Workplace Group (IWG), went bankrupt, as did its U.S. unit, which was doing business as Regus.
Small wonder then that WeWork no longer calls itself a real estate company, even though it is one. It’s now a tech company, an “asset light platform” for managing flexible space. Somehow this is supposed to lead to 90% occupancy by the end of next year and double the revenues.
The Bottom Line on BOWX Stock
Before the pandemic, co-working space seemed to make sense. During the pandemic, every knowledge worker’s apartment or home became a co-working space.
These changes may be permanent, and they change the game for WeWork, just not in a good way. Whatever market there was for temporary, shared space has been cut drastically. I can see it for meetings and short-term projects where the team must get together. But that’s called a hotel.
That’s why I suggest you run, don’t walk, away from WeWork and BowX. This is Softbank trying to use the SPAC bubble to reduce its losses on Neumann.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in any companies mentioned in this article.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.