Short term interest in WeWork (New York Stock Exchange:we) is currently hovering near 38%, with bears betting that the current cash-burn problem plaguing coworking space providers will lead to further share price declines. WeWork’s situation is truly critical. net loss of $454 million Most recently recorded in Q4 2022. That was down about $260 million from the year-ago quarter, but still a loss rate equivalent to nearly a third of his total earnings for the quarter.
Significantly, this means WeWork’s cash and equivalents were down to $287 million at the end of the fourth quarter, down from $460 million in the previous quarter. This was against his $3.2 billion long-term debt and $15.6 billion in capital leases at the end of the fourth quarter.
Company is fighting for survival, announces cuts 300 jobs Against the backdrop of a broader plan to reduce underperforming locations. That prompted WeWork to pull out of at least 40 locations in the U.S. as of last November, with management reiterating his guidance to achieve positive cash flow in the second half of 2023.
Demand rises as liquidity declines
WeWork is resisting pressure from various sides. The most short-term is that at least another 25 basis point hikes are set for his two rounds, so interest costs are rising on the back of the Fed’s funds rate, which was raised to its highest level in more than a decade. That’s it.The company paid the following interest expense $128 millionincreased 9.7% from $115.6 million in the same period last year.
Fourth Quarter Earnings $848 million, up 18.1% year-on-year, broadly in line with consensus estimates. This growth is despite yearly lease terminations and highlights the persistence and importance of coworking his space in the post-pandemic working age. Corporate clients continue to trade long-term office leases for short-term flexible workspaces that can be better shaped for hybrid working styles of their employees. Physical membership increased 17% year over year and physical occupancy increased to 75% at the end of the fourth quarter.
The company also continues to maintain a highly diversified geographical footprint, with new leases signed in Israel, the UK, and India, adding to its growing footprint and extending the term of these three countries. A total of 102,000 square feet of new office space is now online inside. Located in Houston and Scottsdale.
However, WeWork’s overall footprint has declined as leases expire, with the number of physical workstations across the system continuing its decline from 928,000 in the previous third quarter to 908,000. System-wide physical membership increased 15.6% to 682,000 from 590,000 in the prior-year quarter, and physical occupancy increased 300 basis points from the third quarter to end at 75%. This is also growth from 65% share in the same period last year.
WeWork’s fight for survival
Total cash burn from operating activities for the full fiscal year was $733 million, which combined with mid-quarter capital expenditures of $291 million, is up from approximately $923.7 million at the start of fiscal 2022, up to $100,000,000 for the company. A significant level of outflow that reduces total cash and equivalents. $287 million in the fourth quarter.
This created a race against time for the company to reach breakeven in free cash flow. Although the earnings call was tough, management stressed that access to at least $1.287 billion of cash, commitments and liquidity would significantly expand the runway. WeWork expects growth momentum to continue, with fiscal 2023 earnings going from $830 million to $855 million. At the lower end of the range, this means growth of at least 8.5% year-on-year.
WeWork expects SG&A to decline about 10% to about $650 million in 2023, setting the backdrop for its operating goal of generating free cash flow later this year. WeWork faces a tough time getting there as demand for hybrid workspaces threatens to snowball, with debt now heavily on its balance sheet and rising Fed interest rates The company’s commons are now trading $0.24 above the NYSE’s minimum listing requirement, putting further pressure on management to turn things around.
Can WeWork survive? It depends. Bears point to a possible recession and continued weakness in the tech sector as short-term headwinds that could jeopardize positive cash flow plans for the year. The company’s cost reductions will need to go further to further reduce its quarterly cash burn and expand its runway. WeWork’s products are in demand, and I think management can fire a salvo, but at this point he’d rather not take a WE stock position.