WeWork’s Layoffs In Context

Morning Markets: WeWork’s layoffs may help the company’s operating profit, but its free cash flow is a different story.

As expected, WeWork announced layoffs this week. Some 2,400 positions are impacted thus far, a smaller number than many expected.

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WeWork, temporarily The We Company, is a concern in the midst of a transformation. Starting life as a coworking service, the firm morphed into a Medusa-like agglomeration of ambition, led by its erstwhile CEO Adam Neumann. However, after the company filed an infamous S-1 with the SEC as it looked to go public, its CEO was fired and the company’s management shaken up.

As a company, WeWork lost too much money, had little business focus or discipline, all while sporting one of the worst examples of corporate governance the market has seen. Now with new leadership in place, WeWork is limiting its efforts to coworking, shedding unneeded businesses, and trying to cut its losses.

But how much can 2,400 layoffs save the firm? WeWork posted a staggering $1.37 billion operating loss in the first half of 2019. Surely the layoffs can’t make much of a dent against that sum?

However, that isn’t the figure I’d focus on. Instead, if we observe WeWork’s cash flow statement we can see that the firm’s operating activities only burned $198.7 million in H1 2019. That’s a figure that 2,400 layoffs could begin to staunch. The firm’s comical -$1.47 billion in investing cash flow over the same period can be reined in separately.

How far the company is willing to curtail investing in new properties (and thus limiting growth) isn’t clear; the company’s plans still call for extensive buildouts.

Summing, it isn’t impossible to see that the WeWork layoffs will reduce its operating cash burn. But the firm will need to dial back build outs to get its figures where Wall Street wants them it seems. But it’s not all bad news, WeWork claims that its offices make more money over time, and it has lots of space still maturing. Perhaps those locations can provide enough growth to allow the firm to ratchet back spend and get its figures closer to the realm of sanity.

Illustration: Dom Guzman