What happened
Shares of WeWork (WE), the struggling office rental company, were taking a dive today after the company surprised investors by announcing a change in CEO just a week after it reported first-quarter earnings.
As of 2:08 p.m. ET, the stock was down 17% on the news.
So what
In a press release last night, WeWork said that CEO Sandeep Mathrani would be stepping down as chairman, CEO, and director of WeWork as of May 26.
David Tolley, a current member of the board, will take his place. Lead independent director Daniel Hurwitz will become the next chairman of the board, heading a special committee to find a new CEO.
No clear reason was given for Mathrani's departure, and the company gave him credit for steering the business through a difficult time that included a global pandemic and more recent recessionary challenges. Not having a permanent replacement in place, however, suggests that Mathrani was pushed out of the position. The company's recent results help explain investor frustrations.
Despite significant cost reductions under Mathrani, the company continues to lose money, posting a net loss of $299 million and a free cash flow loss of $343 million in the first quarter. Like much of the rest of the office real estate sector, WeWork has struggled to recover from the pandemic, with physical occupancy up from 67% in the year-ago quarter to 73%.
Now what
The CEO change also received poor reviews from Wall Street analysts. Mizuho downgraded the stock to neutral from buy, calling the change at the top post "disruptive," while Piper Sandler called the stock a "show-me story."
The company also reaffirmed its second-quarter guidance of $840 million to $865 million in revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of between -$10 million and $15 million.
Given the continuing losses, macroeconomic pressure, and now a hole to fill in the top job at the company, it's hard to see a reason to invest in WeWork right now.
