Short sellers have piled onto WeWork as the coworking firm failed to deliver on promises of turning a profit in its first full year as a publicly traded company.
Investors held short positions on more than 27 percent of WeWork’s publicly tradable shares as of Dec. 15, according to MarketWatch. Shorts totaling more than 10 percent of a company’s float are generally a sign that the market is pessimistic on its future; more than 20 percent is a highly shorted stock.
Since it went public about 15 months ago, WeWork has continued to burn through cash and has several times pushed out its timeline to turn a profit, now eyeing later this year.
“Right now all [investors] see is WeWork promised three times to hit its break-even goal and push that out,” said Mizuho analyst Vikram Malhotra, who rates the flex-office company a buy.
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WeWork has been able to stem losses but is still burning through cash. The company had $460 million of cash on hand at the end of September, down from $924 million at the start of the year, according to its most recent financials.
The company is trying to get a grip on costs and recently cut 40 locations. CEO Sandeep Mathrani said he now expects WeWork to be in the black at the end of this year.
“It will be in the tail-end of 2023,” Mathrani said on a conference call with analysts in October. The CEO gave the company a vote of confidence in August when he bought about $250,000 worth of stock at $5 a share.
On the balance sheet, the company has $3.2 billion worth of debt maturing in 2025. And it has a $1.25 billion letter of credit due the same year.
With the tech industry cutting jobs and the prospect of a recession looming, investors are concerned about how WeWork will address those maturities.
“The question is, if fundamentals deteriorate: How do you service the debt?” Malhotra said.
A spokesperson for WeWork declined to comment. Analysts said there’s also a concern that WeWork will have to repay debt by issuing new shares while its stock is down.
WeWork was trading below $1.40 per share on Tuesday, down from its IPO price of nearly $10.
Still, there are optimists. Analysts at BTIG believe that three years’ worth of cost cutting and higher occupancy have set WeWork on the path to profitability.
“The key here is that we believe this will occur without the need for additional equity,” the analysts wrote in November.
WeWork went public in October 2021, and it’s been a bumpy ride since. Short investors piled in almost from the beginning, with short positions peaking at about 38 percent of the float in July. Short interests have since come down, but remain elevated.
Cantor Fitzgerald analyst Brett Knoblauch, who also has a buy rating, said short interest really started picking up around the time that WeWork’s corporate bonds were trading at yields down around 10 percent. Yields have since climbed to about 60 percent.
Short interests may be trending down because the company’s position has improved, he said. Or it could be that the stock has fallen enough for the shorts to cover their positions.
“Given how much shares are off from SPAC price, and even this month, [I] would expect short interest to come down as [I] would assume some would have covered,” he wrote in an email last week.