Shared office giant WeWork: "Serious doubts" about the company's ability to continue operating, plunges 30% after hours | Earnings Report

After the US stock market closed on Tuesday, August 8th, WeWork, the global co-working giant, expressed "serious doubts" about its ability to continue operating in its second-quarter performance. The company is currently facing continuous losses and a situation where office space members are canceling leases. In its earnings report, the company stated that its ability to continue operating depends mainly on the effectiveness of reducing leasing costs, negotiating more favorable leases, increasing revenue levels, and raising funds over the next 12 months.

The company's stock price plummeted more than 30% after hours.

The second-quarter report shows that the company's revenue in the second quarter was $844 million, a year-on-year increase of 4%, slightly lower than the market's expected $851 million. The net loss was $397 million, a year-on-year narrowing of $238 million. The adjusted pre-tax loss was $36 million, significantly lower than the market's expected adjusted pre-tax profit of $26.8 million.

As of the end of the second quarter, its occupancy rate was 72%, slightly higher than the 70% of the same period last year.

David Tolley, interim CEO of the company, said:

In a challenging operating environment, we have achieved steady year-on-year revenue growth and significant improvement in profitability. The oversupply of commercial real estate, the continued trend of flexible office models, and macroeconomic fluctuations have led to a higher-than-expected membership cancellation rate and continued weak demand, resulting in a slight decline in the number of members.

At the beginning of 2020, when the COVID-19 pandemic struck, WeWork's office spaces were almost empty. Although the world gradually emerged from the impact of the pandemic last year, WeWork has made slow progress in attracting new tenants. The market believes that the company's recovery seems unsustainable.

In addition, the company has recently experienced changes in its leadership. Sandeep Mathrani, who took over as CEO of WeWork in early 2020, resigned in May this year.

Shortly after co-founder and former CEO Adam Neumann was ousted for failing to take the company public in 2019, Mathrani took over as CEO. On Tuesday, WeWork announced that its three independent board members would be replaced by four new board members.

WeWork initially provided services to startups in New York City in April 2011. As of March 2016, WeWork had 80 shared office spaces in 23 cities worldwide. In the following years, WeWork received extensive investment from numerous institutions and its valuation reached nearly $50 billion, making it one of the top "unicorns" in the United States. As of the end of the second quarter of this year, WeWork's shared office spaces are located in 39 countries and regions worldwide, with a total of 777 office spaces.In 2019, WeWork, adorned with the halo of the "sharing economy," prepared for its IPO. However, just before the IPO, the company announced the termination of the IPO process. Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, believes that the failure of WeWork's initial public offering marks the end of an era. He stated that investors have made it clear that they are no longer willing to foot the bill for overinvestment:

In our view, the days of generously funding unprofitable companies are over.

WeWork eventually went public at the end of 2020. As of Tuesday's close, the company's stock price has plummeted by 85% this year.