It’s yet another down day for shareholders in WeWork (NYSE:WE). Today, WE stock is declining another 6% after the company announced plans to renegotiate most of its leases.
According to recent reports, WeWork is working to renegotiate the vast majority of its 777 locations around the world. The company has come under pressure to renegotiate these leases, given that many were made prior to the pandemic and that the environment has obviously shifted over the course of the past three years.
With the pandemic now in the rearview mirror, investors are focused on what the operational fundamentals of WeWork will be moving forward. The company has managed to lose roughly $15 billion over a little more than five years and it’s growing increasingly clear that investors won’t backstop the company and provide additional equity to support these losses moving forward. Thus, given WeWork’s recent comments — and its apparent commitment to move away from underperforming locations — WeWork will likely have less than 777 global locations next year.
Let’s dive into what investors should make of this strategic move and today’s decline.
WE Stock Sinks on Key Strategic Move
WeWork’s shift toward renegotiating its leases was probably necessary. Accordingly, investors may be intrigued by WE stock’s downward move on this announcement.
In some respects, this renegotiation ploy may appear to be a move made out of desperation, similar to the company’s reverse split carried out last week. Now, it’s clear that WeWork is unlikely to grow its way out of this mess.
Of course, the renegotiation of leases and streamlining of locations could narrow its losses in the near term. A return-to-work trend could also support improved margins over the medium term. However, the question remains whether WeWork can survive long term, especially given the structural shifts toward hybrid work-from-home models brought on by the pandemic.
I’m of the view that the market is right to be skeptical of WeWork’s ability to not only negotiate favorable terms with lenders but also to restructure its business model for profitability in some reasonable amount of time. With so many investors focused on profitable growth companies, WE stock is likely to remain on the chopping block for many investors. That’s enough of a reason to simply avoid shares — at least until there’s an indication that things are truly turning around.
On the date of publication, Chris MacDonald did not hold (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.
