2023-05-17 08:13:52 ET
Mizuho Securities USA analyst Vikram Malhotra downgraded WeWork ( NYSE: WE ) to Neutral from Buy due to the "disruptive" exit of CEO Sandeep Mathrani and macro headwinds facing the co-working space company.
With higher corporate layoffs and bankruptcies in the past two months, Malhotra said his base case business assumptions, particularly occupancy targets, now appear to be unachievable. As a result, higher cash burn will eventually drive the need for outside capital, he said. He doesn't see WeWork ( WE ) achieving positive free cash flow until the end of 2025.
Mathrani's sudden departure after a three-year stint at WeWork ( WE ) "leads us to believe this change may not be entirely voluntary," the analyst wrote in a note to clients.
Malhotra pointed out that the company made substantial progress under Mathrani's leadership, including eliminating $2.3B of recurring costs, increasing occupancy and revenue from COVID lows, and eliminating $1.2B of debt in its balance sheet restructuring. "We see the CEO change as disruptive in terms of strategy and likely employee turnover," the analyst said.
Note that the SA Quant system flashed "Strong Sell" on WeWork ( WE ) since April 2022, while Mizuho had issued a Buy rating on the stock at about the same time.
Malhotra's Neutral rating breaks with the average Wall Street rating of Buy .
SA contributor Macrotips Trading points out that despite achieving 73% occupancy levels, WeWork ( WE ) still posted an adjusted EBITDA loss in Q1 2023 , indicating that the company's business model doesn't work.
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WeWork downgraded to Neutral at Mizuho on CEO exit, mounting headwinds