Analysts at USB have slashed their price target for WeWork from US$2 to US$0.20 after the office space and workspace solutions provider posted weaker-than-expected first-quarter results and significant equity dilution following its recent restructuring.
WeWork’s shares are currently trading at US$0.18.
“Our $0.20 price target assumes approximately 5x our FY24 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) estimate of $528 million (versus 12x $419 million previously),” the analysts wrote in a note to clients.
“We are lowering our target multiple as WE's risk profile has increased significantly, now targeting the low end of the range of the real estate services peer group.”
The analysts retained their ‘Neutral’ rating on the stock.
On WeWork’s first quarter earnings, they noted that WeWork’s revenue of $849 million, compared to their estimate of $848 million, was an 11% increase year-over-year and flat on the last quarter.
Adjusted EBITDA of negative $29 million was below the analysts’ expectation of negative $13 million which they noted was due to higher revenue and higher expenses.
“While the recent restructuring strengthens the balance sheet and increases liquidity, WE's adjusted EBITDA loss in 1Q was greater than expected and significant cash burn remains, which makes it difficult to have full confidence in the company's outlook,” they wrote.
“Occupancy and memberships declined quarter-over-quarter and guidance for 2Q23 came in below Street forecasts heading into the quarter.
“Free cash flow (FCF) continues to improve, as revenue increases and operating expenses and capital expenditures (CapEx) decline, however, not fast enough and not as fast as management had previously indicated. FCF breakeven is now expected to occur in 2H24 rather than the end of 2023.”
However, they noted that WeWork’s drop in occupancy during 1Q was due to timing and not indicative of demand.
“While consolidated physical occupancy increased to 73% from 67% a year ago, it declined from 75% last quarter due to a decline in memberships from 547,000 in 4Q22 to 527,000 in the 1Q,” they wrote.
“That said, trends appear to be improving so far in the 2Q, as more companies are executing mandatory return to office dates for employees and need space on short notice driving demand for WE's offering - turnkey space that is immediately available.”
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