Bet You Forgot About This Disaster Of A Company

Key Takeaways:

• WeWork looks strikingly similar to one of the dot-com bubble’s biggest busts. 
• However, there’s a new WeWork you might not have known existed. 
• With a shift to more corporate clientele, WeWork stock might be worth a look. 

Before we dive into present day WeWork, a little relatable story. 

When I lived in San Francisco at the turn of the century, there was a company called Webvan. 

Turns out Webvan was ahead of its time. Webvan was a grocery delivery service. 

Place your order online. Pick a delivery window. Webvan does your shopping for you, then brings your order to your doorstep. So commonplace now, but super novel in 1998.

Webvan Was A Massive And Quintessential Dot-Com Bust

Someone needs to do a documentary on Webvan. 

The highlights: 

• Received nearly $400 million in venture capital, including $160 million from Japan’s Softbank.
• Expanded (too) rapidly throughout California and elsewhere, including Portland and Atlanta.
• Did an IPO.
• Filed for bankruptcy in 2001.
• Former CEO George Shaheen collects $375,000 a year as part of the retirement package he received when Webvan lured him from Andersen Consulting. 
• Webvan spent lavishly on its offices, including about $800 apiece for Herman Miller Aeron office chairs. 

Similarities To WeWork

WeWork’s big downfall was rapid expansion, encouraged by investors such as Softbank, who gave the company billions. 

WeWork bled cash on this expansion as well as luxurious offices and cult-like company parties and retreats. 

In 2019, investor pressure led WeWork to withdraw its IPO application over concerns about lack of profitability and corporate governance. Neumann resigned as CEO, but walked away with billions, including nearly $1.7 billion from Softbank so he’d cut most ties with the company. Oddly, Neumann stayed on in a consultant role with a $46 million salary. 

WeWork Today

After some downsizing, which included slower growth plans and ending free beer at its North American locations, WeWork finally went public in 2021, not via IPO, but through a special-purpose acquisition merger (SPAC).

Today, WeWork trades at around $6.82 per share, down from an all-time high of $14.98 and off roughly 26% YTD. 

Interestingly, there’s some optimism on Wall Street, some of it as recent as the past week. 

Piper Sandler suggests buying WeWork stock, saying the company could turn a profit within two years. This would be quite the accomplishment, given WeWork lost $4.6 billion in 2021, up from a $3.8 billion hit in 2020. 

This didn’t stop another analyst firm, Mizuho, from arguing WeWork stock could double over the next two years. They say WeWork will benefit from the post-pandemic work transition to more flexible and hybrid models. 

There is data to back up this optimism.

WeWork’s 2021 membership includes 63% of Fortune 100 companies. It has enterprise deals and partnerships with major names, including Cushman & Wakefield and Hudson’s Bay Company. 

At its 756 locations across 38 countries, WeWork membership does trend enterprise and long-term. 

Source: WeWork 2021 Annual Report

Current WeWork management has obviously shifted focus from Neumann’s original idea of bringing individuals together to create community (like a kibbutz) to a more traditional, corporate-skewed co-working model. 

Worth noting that WeWork doesn’t show up in our proprietary Trackstar data of the stocks investors are searching for, including in the Real Estate Services category (see the top of this email). This just might mean it’s truly flying under the radar. 

The Bottom Line: We’ll keep an eye on WeWork here at The Juice. 

The Wall Street upgrades might be jumping the gun, particularly when you consider the company’s massive losses. 

That said, if WeWork belongs in your portfolio at all right now, it belongs in that speculative segment we love to talk about. That 5% or so where you keep the stocks with huge risk, but equally as large reward potential. Ones where you see the potential for the type of turnaround stories that can generate meaningful upside, such as a double or better.

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