- WeWork’s (WE) business model has held up well in the post-pandemic world.
- Management forecasts are highly encouraging and point to a massive upside ahead.
- WE stock can be a profitable short-term play on the back of multiple growth drivers.
WeWork (NYSE:WE) has been at the center of multiple controversies in the past couple of years. The flexible workspace provider has seen its stock tank by over 45% in the past 12-months. With all the bad press it has gotten and the over-emphasis on growth rather than profits, WE stock was destined to have it rough.
However, we are seeing some bright spots emerging of late. Occupancy rates across multiple markets are rising at a healthy pace, while the management is looking to rationalize the cost structure.
The business is proving to be remarkably resilient in the, increasingly, post-pandemic world. And WeWork is definitely proving the naysayers wrong. Moreover, it is also looking to become a leaner business, exiting some of its non-core businesses. Nevertheless, it remains more of a speculative play, which could potentially be a winner down the line. It’s best to allocate only a small portion of your portfolio to the stock.
| WE | WeWork | $6.96 |
Encouraging Analyst Coverage
Over the past few weeks, we have seen a bump in analyst ratings for WE stock. For instance, an analyst from investment bank Mizuho (NYSE:MFG), Vikram Malhotra, started his coverage with a “Buy” rating for the stock. He believes that the company can take a sizeable share of the flexible office market, which is expected to grow 50% within the next three years. Moreover, he estimates that the company can generate $4.40 billion in sales by 2023, compared with consensus estimates of roughly $4.31 billion.
Similarly, Alexander Goldfarb, an analyst from Piper Sandler (NYSE:PIPR), resonates with the same sentiments as Malhotra. He starts his coverage of WE stock with an overweight rating and expects over a 50% upside from current levels. Moreover, he feels that WeWork’s march towards profitability by late 2023 hasn’t been appreciated much by investors. According to Goldfarb, the company’s desk utilization rates have risen to an incredible 63% compared with pandemic lows of 45%. Also, office utilization rates are up to 35%, which shows the appeal of the company’s flex work model. Furthermore, WE stock has a “Moderate Buy” rating from TipRanks, with a 35% upside from its current levels.
The Future Looks Bright
WeWork released its fourth-quarter results last month and guidance for the upcoming year. The results showed strong progress across both the top and bottom lines of the business. It generated $718 million in sales during Q4, representing a 9% bump from the $661 million it made in the third quarter. Physical occupancy was up 7% to 63% at the end of the quarter. Additionally, seven of its key markets, including Munich, Miami and Nashville, had over 90% occupancy. Moreover, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of a negative $283 million was a $73 million improvement on a sequential basis. Furthermore, the company ended the quarter with $2 billion in cash, which should be enough until it reaches profitability.
The company expects revenues to fall in the $740 million to $760 million range in the first quarter. In the second quarter, it forecasts revenues to be in the $775 million to $825 million range. WeWork’s management feels confident about its forecasts, given that more than 90% of its second-quarter sales are already committed. By 2022, it expects to generate a whopping $3.8 billion to $4 billion in system-wide sales, a 52% increase from last year’s lower-end of the guidance.
Bottom Line on WE Stock
Several positive trends are going on for WeWork at this time. In the past, it made several mistakes that negatively impacted its reputation among investors. However, it has a solid business model, which has proven to be resilient so far.
It has held its own in the post-pandemic scenario and is now pushing for profits within the next couple of years. The next couple of quarters will show how effective it’s been in carving a path towards profitability.
Nevertheless, WE stock presents itself as a high risk, high reward opportunity and deserves only a small percentage of your portfolio. Investing too much in the stock carries significant risks, but its current share price offers healthy long-term rewards.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
