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The IPO flubbed, and WeWork will now try to go public a different way.
What's changed? This company will be under a different kind of management, called a special purpose acquisition company. Yes, it is jumping on the SPAC train.
A WeWork SPAC deal is especially interesting since the 2019 WeWork IPO became one of the biggest disappointments of the decade. It was one of the largest real estate companies in the world, valued at $47 billion, before cutting its valuation to $10 billion and withdrawing its IPO bid.
Adding to the embarrassment, tech startup conglomerate Softbank swooped in to purchase the company for just $5 billion. CEO Adam Neumann walked away with a cool $1.7 billion.
Neumann is back, however, to help guide the company through the SPAC merger.
Here's how the SPAC deal is going down - and whether or not WeWork stock is a buy.
Who's the Lucky WeWork SPAC?
BowX Acquisition Corp. (NASDAQ: BOWX) raised $420 million before anyone knew what company the SPAC would combine with.
Now, it's merging with WeWork at a valuation of $9 billion.
WeWork has committed to raising $1.3 billion. A portion of that is $800 million of private investment in public equity (PIPE) from several investment banks. PIPE is just money from shares sold to private investors at a lower price than the public one.
One of the things to look for with SPACs is the history of their management. Bow Capital is headed by the Vivek Ranadive, owner of the Sacramento Kings and founder of TIBCO Software. He will be joining the WeWork board.
You could do worse than trust the founder of a multibillion-dollar company. The celebrity-CEO factor might also be necessary to complete Adam Neumann's upscale vision for WeWork. Ranadive would be all of that, plus decades of experience managing a company.
But if you're still not exhausted by the idea of giving your money to visionary-but-erratic celebrities, Shaquille O'Neal sits on the board at Bow Capital as well. Fun fact: Shaq is notably one of the more financially prudent professional athletes in the world.
From a leadership standpoint, the deal with Bow looks like an improvement.
The business model, however, still raises some eyebrows.
Some traders out there may hope the current climate is different - maybe the company has smoothed out its edges?
Well, it's time to crush those hopes again.
Here's why WeWork stock won't be a buy before, during, or after the SPAC merger.
Why WeWork Stock Is Not a Buy
We've talked about this before, but let's make one thing clear before we move on: The WeWork business model is silly.
The company signs long-term leases on office space, renovates it, and sublets it to teams and individuals looking for space to be productive.
Maybe it sounded "cool" at first - high-end rental properties as workspaces for successful entrepreneurs to convene. Maybe you even thought the growing work-from-home trend would encourage a disparate workforce to huddle together and socialize.
WeWork allows for all of that. For up to $500 a month, you can even sign up for perks like professional workshops and getaways.
The WeWork portfolio has expanded to around 500 locations around the world and a half-million members. It certainly looks like the company is meeting a real need in the market.
Don't fall for it.
HIDDEN PORTFOLIO POISON
These 19 stocks are like poison for portfolios - and far too many investors are holding them without even knowing.
HIDDEN PORTFOLIO POISON
These 19 stocks are like poison for portfolios - and far too many investors are holding them without even knowing.
Yes, this is a real trend. There will be more people working remote in the years to come. Those people may want to get out of their apartment buildings or even use WeWork as a full-time office. Some companies might even pay the subscription fees for remote employees.
One problem is, "We" didn't "Work" during COVID-19. Most of the 500 locations had to shut down, and the company underwent mass layoffs.
There is a chance for this to pick up once things are fully open. But there is also a chance - just maybe, after a year of lockdown - that people are still a bit shy about breathing the same air as strangers.
Another concern is that the company is merely a middleman for traditional real estate companies like Simon Property Group Inc. (NYSE: SPG) and Boston Properties Inc. (NYSE: BXP).
Legacy real estate is capital-rich; WeWork last reported $2 billion in losses.
Legacy real estate doesn't flinch at a bidding war from a startup like WeWork.
Moreover, they could easily form their own "workplace of the future" brand if they wanted to.
And when the need presents itself, they probably will.
Bottom line, this is a highly saturated market with some big players. To really "disrupt" would require more than slapping a fancy label on something that's been working for decades.
Shares of BOWX can still be bought for around $12 before they convert to the WeWork stock ticker, WEWK.
You might get some early upside if you buy now, but as far as long-term holds go, WeWork is not it.
If you're looking to bank on real estate, here's the stock to look at...
The Stock to Buy Instead of WeWork
If you're in the market for a home, good luck. Housing inventory right now is reminding people of the pre-2008 bubble.
But that's good news if you're in the market for a home-building stock.
A shortage on houses means more homes getting built. For that, Money Morning's Chris Johnson recommends the SPDR S&P Homebuilders ETF (NYSEArca: XHB).
Right now, you're looking at an increasing money supply (dovish fed) in concert with a nationwide exodus from cities. People want to live in the country, away from all the hazards posed by cities, including COVID-19.
With prices and demand for homes going up, the cost of materials like wood and concrete are as well. Those costs turn into higher real estate prices.
XHB is hovering around all-time highs right now. But the thing with real estate is that it never goes out of style. Everyone needs a roof over their head, and right now, that's especially hard to find.
This diversified portfolio of homebuilding stocks could help you plow through today's mucky real estate market.
WeWork would really surprise almost everyone if it could sustain growth past its first few weeks going public. This is a much more stable alternative.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.
