We-Don't-Work!

For the full version of the newsletter and better insights...Sign up here to receive Lockstep's Daily Catchup — directly in your inbox.

Market Performance

• Dow Jones Industrial Average: +0.10%
• S&P 500: +0.18%
• Nasdaq Composite: +0.30%

The Fall of WeWork

Desk-rental company WeWork filed for bankruptcy yesterday, marking the end of a company that had once reached a staggering valuation of $47 billion.

For those unfamiliar with WeWork, it emerged in 2010 as a co-working space in New York City and, thanks to its charismatic founder, Adam Neumann, swiftly expanded into a global co-working behemoth. The company secured substantial investments from notable backers, including a remarkable $10 billion injection from Japan's SoftBank during its peak. However, corporate governance issues marred WeWork's journey, and by the time it eventually listed, its valuation had fallen to $9.5 billion.

We've previously emphasized the risks associated with investing in 'The Next Big Thing' and following investment fads, so there are lessons we can learn here:

By simply applying one's mind, it's easy to see that WeWork was essentially a property company engaged in leasing out its spaces, not fundamentally different from a conventional Real Estate Investment Trust (REIT). From this perspective, as opposed to Adam Neumann's vision of revolutionizing the way people work, glaring warning signs quickly emerge.

An examination of WeWork's 2021 Annual Report reveals that the company had only $5.4 billion in property assets on its balance sheet, whereas the majority of its properties, valued at over $13 billion, were subleases.

Looking over the Income Statement is even more alarming as the company made $3.5 billion in revenue in 2019, $3.4 billion in 2020, and only $2.6 billion in 2021. But the big red flag is that the company consistently made over $3 billion in losses yearly over those three years. When confronted with figures like these, it's astonishing that the company was ever valued at $47 billion and even contemplated a successful IPO at $10 billion.

Granted, we have the benefit of hindsight!

Nevertheless, the lesson to learn is that as investors, our job is to buy assets that we believe will be worth more in the future. With that perspective, how could we possibly justify investing in a company that subleases its portfolio at a loss?

We all work hard for the money we have and are privileged to be in a position to invest. We are not about to throw it away because we are scared of missing out on the next "Revolutionary Idea.

Earnings Season Highlights

During earnings season, we highlight the earnings from some better-known companies and give you a heads-up of which firms are reporting:

REPORTED EARNINGS: 6th November 2023

• Ryanair Holding (RYAAY): Earnings per share (EPS) beat analysts' expectation by 4.7%

TODAY’S EXPECTED EARNINGS: 7th November 2023

• Gilead Sciences (GILD): After the Market Closes (AMC)

This is a condensed version of Lockstep's Daily Catchup Newsletter. For more details plus references to sources, sign up here and receive the full newsletter directly in your inbox.

Help Grow Our Community

If you find our insights valuable, consider sharing Lockstep with your network.