For months, Wall Street touted WeWork as another promising "unicorn" IPO expected to hit the market in 2019. And on July 23, the real estate firm announced the WeWork IPO date for September.
Those plans have been put on the shelf. In fact, WeWork just announced it was delaying its IPO for at least another month.
This doesn't bode well for an IPO that we've already said would be a flop. As we've cautioned before, investors should steer clear of WeWork stock after its eventual IPO.
However, we'll show you a much better investment in just a moment.
WeWork is one of the biggest real estate firms worldwide. With an initial valuation of $47 billion, venture capitalists have been vying to stake their claim in WeWork stock.
And it's no surprise. Many of them forecast that it would turn into the second largest IPO of 2019 - behind Uber Technologies Inc. (NYSE: UBER), of course.
But we all know how that one turned out.
We always knew buying WeWork stock after the IPO would be risky for retail investors.
But what makes us so skeptical of the company, anyway? We'll tell you everything you need to know below - and why WeWork stock doesn't deserve a spot in your portfolio.
Plus, we have an even better buy in the real estate sector. In fact, with our Money Morning VQScore™ system, we've found a REIT with breakout potential. And it even has our highest score...
What Does WeWork Do?
WeWork is a real estate firm based in New York. What makes it stand out is its unorthodox business model.
WeWork leases to entrepreneurs, freelancers, small businesses, startups, and even large companies.
And it does this through its "Shared Workspaces." Members of WeWork pay monthly fees to use the "Shared Workspaces."
There are varying membership levels in WeWork, too. Depending on which one you have, the benefits and prices will be different. So, if you sign up for the cheapest one, it's $45 a month and you can book workspaces with community access.
If you use "Shared Workspaces" regularly, it's about $190 a month. Some options even go above $500 a month.
As of 2019, WeWork has 834 locations in 126 cities around the globe. Plus, Statista says WeWork has at least 466,000 members.
With that said, what does WeWork's financial situation look like?
A Closer Look at WeWork's Financials
In the first six months of 2019, WeWork has made $1.54 billion in revenue. That's up 73.8% from 2017's $886 million.
And this rapid growth has attracted some big institutional investors.
Originally, Softbank Group Corp. (OTCMKTS: SFTBY) bought about $10 billion worth of WeWork stock. And on Sept. 13, 2019, the bank bought $750 million more.
Plus, JPMorgan Chase & Co. (NYSE: JPM) was even in competition with Morgan Stanley (NYSE: MS) to finance WeWork's IPO. And in August, it officially announced it was leading WeWork's IPO.
Other WeWork stock investors include Goldman Sachs Group Inc. (NYSE: GS), T. Rowe Price Group Inc. (NASDAQ: TROW), Fidelity, and Benchmark.
Even Chinese firms have shown interest in WeWork stock. Hony Capital, Jin Jiang International Holdings, and Legend Holdings all have a stake in WeWork stock.
These investments and level of interest rocketed WeWork's valuation to $47 billion. And the anticipation of its IPO had investors forecasting WeWork to raise $6 billion in capital.
But its huge valuation was bound to crumble. These big-name investors were overlooking many of WeWork's flaws.
WeWork has had giant losses for years. Its 2018 revenue of $1.8 billion was offset by a $1.9 billion loss. And even with $1.54 billion revenue in the first six months of 2019, its losses are already close to $700 million.
Even with its big funding from some of the largest investors, it's still not even close to being profitable. This fact is finally settling in for institutional investors that have been bullish on WeWork stock.
In fact, growing investor skepticism is why there's a delayed WeWork IPO. Its initial $47 billion valuation has crumbled to a range of $15 billion to $20 billion. And it's now expected to raise half of what investors initially forecasted at its IPO.
But those aren't even the biggest red flags for the company...
Why WeWork Stock Is Riddled with Red Flags
For one, WeWork is in a highly saturated and competitive sector.
It's up against profitable real estate firms with revenue anywhere from $3 billion to $60 billion. Some of these firms include Gecina SA (EPA: GFC), Simon Property Group Inc. (NYSE: SPG), and Boston Properties Inc. (NYSE: BXP).
What really hurts our confidence in WeWork stock is the fact that its CEO, Adam Neumann, cashed out $700 million of his shares in July. On top of that, he just lowered his voting rights per share from 20 to 10. To us, that suggests he's not the most confident in WeWork's long-term success either.
So, with WeWork's delayed IPO, crumbling valuation, losses, competition, and Adam Neumann cashing out $700 million, WeWork stock is not worth your money.
Watch Now: Robert Herjavec is helping everyday Americans discover the next Airbnb. Click here now...
Instead, we have a much better investment to get in on the real estate market. In fact, our Money Morning VQScore™ system says this REIT has breakout potential with a perfect score of 4.9.
Plus, it offers a great 6.64% dividend yield...
Don't Buy WeWork Stock After the IPO - Buy This REIT Instead
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The REIT is Brookfield Property REIT Inc. (NYSE: BPR).
This is a U.S.-focused companion REIT for the real estate company Brookfield Property Partners LP (NASDAQ: BPY).
Both BPR and BPY are spin-offs of the parent company, Brookfield Asset Management Inc. (NYSE: BAM). According to The Wall Street Journal, BAM is the biggest real estate firm worldwide. In fact, it has a massive market cap of $53.67 billion.
BAM made BPY and BPR as economically identical assets. In fact, both offer a great 6.64% dividend yield. On top of that, they provide the same distributions and growth rates. Plus, you can exchange BPR for BPY stock.
But there is a slight difference. BPR provides the tax structure of a REIT while offering exposure to BPY's properties.
So, there are a few benefits with BPR that you wouldn't see with BPY.
REITs are required to pay 90% of taxable income to shareholders. And BPR helps investors save money, since you can deduct 20% of a REIT's dividend from your income taxes.
So, BPR has the best of both worlds. You get the exposure to an incredible real estate firm, but also the benefits of a REIT.
According to MarketWatch, BPY has close to $90 million worth of assets across five continents. Retail properties make up 42% of BPY's assets. Office space accounts for 41% of its assets. And both retail and office space create roughly 12% in annual net returns.
BPY leases famous properties like London's Canary Wharf and Las Vegas' Fashion Show Mall. It also owns New York's Hudson Yards and Brookfield Place.
Beyond that, BPY has major companies that lease out its spaces. They include Prada SPA (OTC: PRDSY), Ulta Beauty Inc. (NASDAQ: ULTA), Cheesecake Factory Inc. (NASDAQ: CAKE), and many more.
BPY's remaining 17% of assets consist of BAM's private real estate funds, all of which have a strong history of great performance. In fact, their annual net returns average over 20%.
And BPR directly benefits. In fact, BPR's latest earnings report showed earnings jumped 6%. That number is expected to continue growing well into the future.
This isn't surprising, considering BPR's net income between 2015 and 2018 soared by 200%. From 2017 to 2019, its funds from operations (FFO) grew by 30%.
Plus, its renter retention rate is 95%. But what makes BPR an incredible REIT to buy is its awesome 6.64% dividend yield.
Right now, BPR is trading for $19.88 per share. With a consensus target price of $27, it's forecast to go as high as 40% over the next 12 months.
And with our highest VQScore of 4.9, we think it could soar even higher.
Robert Herjavec: Indisputable Proof That Anybody Can Get Rich Through Angel Investing
When Neil Patel launched the Angels & Entrepreneurs Summit, he had only planned to invite a small group of guests to join him and guest "Shark" Robert Herjavec... but then Neil revealed something truly shocking.
During this clip (about halfway through the event), he reveals indisputable proof that anybody can transform their life through angel investing.
We knew we had to show this event to everyone - the information is just too valuable to keep under wraps.
You owe it to yourself to watch this right now.
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About the Author
Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.