WeWork stock up on first day, but profitability still fuzzy

CEO Sandeep Mathrani touts reforms as predecessor Adam Neumann celebrates at swanky hotel

Sandeep Mathrani (left) is WeWork's current CEO after replacing Adam Neumann (right) in 2019 (Getty, WeWork)
Sandeep Mathrani (left) is WeWork's current CEO after replacing Adam Neumann (right) in 2019 (Getty, WeWork)

Two years after WeWork’s planned IPO imploded in spectacular fashion, the co-working company is now a publicly traded company on the New York Stock Exchange.

The flex-office provider pitched itself to investors as WeWork 2.0. Gone were the hard-partying, pot-smoking days of founder Adam Neumann. No more self-interested side deals and pet projects like WeLive or WeGrow. Instead of seeking to “elevate the world’s consciousness,” WeWork’s new core values would be “to do the right thing” and “give gratitude.”

Most of all, WeWork cut its fat. It restructured or exited more than 200 leases, saving north of $200 million, according to its investor presentation.

Investors appear to be buying the pitch. Shares of WeWork, which went public through a SPAC by merging with BowX Acquisition Corp and began trading Thursday under the separate ticker symbol WE, finished the trading day up 13.5 percent.

But not everything has changed for WeWork: The company is still not profitable.

When WeWork first tried to go public, the company’s wasteful spending and rapid-growth strategy resulted in a net loss of $1.6 billion in 2018. The company said in its filing at the time that it might be “unable to achieve profitability at a company level.”

Things are significantly better now, but WeWork continues to operate in the red. In the second quarter, the company reported a net loss of $923 million.

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This time WeWork has laid out a path to profitability. WeWork CEO Sandeep Mathrani said in an interview on CNBC on Thursday that he expects the company to be profitable sometime in 2022.

The company said earlier this year it can break even on its adjusted EBITDA, if occupancy rises to 70 percent. (Occupancy was at 60 percent in September, according to the company.)

Of course, this does not mean that WeWork will actually be profitable. Adjusted EBITDA is a non-GAAP metric commonly used by companies to inspire confidence but it’s not a synonym for net income. Berkshire Hathaway Vice Chairman Charlie Munger once referred to EBITDA as “bullshit earnings.” And “adjusted” EBITDA is like putting that questionable metric in a funhouse mirror.

Nonetheless, the co-working firm’s return to the capital markets is a major coup for CEO Mathrani and executive chairman Marcelo Claure. Just two years ago, the company was on the brink of collapse after its public filing revealed financial losses, self-dealing and strange antics from Neumann. SoftBank was forced to cough up nearly $10 billion to take control of the company from its mercurial co-founder.

Now WeWork has a $9 billion valuation and the merger with BowX provided it with $1.3 billion in cash. It’s also worked on new partnerships in the past few months; WeWork and Cushman and Wakefield recently announced a collaboration aimed at helping office tenants adapt to remote work and flexible spaces. WeWork also has a new venture from Saks Fifth Avenue to run co-working spaces in the retailer.

“Two years ago, the value of WeWork was zero and the fact we’ve taken it from zero to $8 billion to $9 billion is great,” Claure said on CNBC’s “Squawk Box” Thursday morning.

In a flashback to 2019, Neumann — who holds an 11 percent stake in WeWork — was observed celebrating the public listing. On Thursday, he joined some of the original employees of the company at the swanky Standard Hotel in Manhattan’s Meatpacking District, according to the New York Post. Champagne bottles popped off at 9 a.m. and bloody Marys and mimosas were served.

“A brand without a past does not have a future,” Neumann told the Post.