What happened
The stock market was having a generally negative start on Wednesday morning, with all three major benchmark indices slightly lower a few minutes after the opening bell. However, co-working company WeWork (WE) was a major laggard.
As of 9:45 a.m. ET, WeWork's stock had fallen by nearly 20% for the day, continuing a downward spiral that has persisted for a long time. Before it went public in a SPAC transaction at a $9 billion valuation in late 2021, WeWork commanded a valuation as high as $47 billion in a January 2019 funding round. Today, it has a market cap of just $380 million -- less than 1% of its peak value.
So what
We've seen a few once-promising companies that took the SPAC route to go public collapse in recent months. But WeWork looks like it could be the most prominent ex-SPAC of the 2020-2021 boom to fold.
Along with its second-quarter earnings report, in which it reported a $397 million quarterly net loss, WeWork told investors that "substantial doubt exists" about the company's ability to keep operating. Management said that to stay in business, the company must negotiate better terms on its leases, reduce membership cancellation rates, and raise more money through debt and/or equity.
Now what
In a nutshell, WeWork is burning through cash at an unsustainable rate. The company has a total of $680 million in liquidity, and with a net loss of nearly $400 million in the second quarter alone, it doesn't take too much math to figure out that this can't last much longer. WeWork still has a little bit of time to try to save the business, but things aren't looking great.
