WeWork’s IPO will fail because its business model requires a booming economy. The next recession will destroy the company. | Source: Shutterstock
By CCN Markets: There’s a song that says, “one is the loneliest number.” In fact, zero is the loneliest number, especially when it is preceded by a dollar sign. And $0 is where WeWork stock is going to go after the next recession hits, but don’t count on anyone else to tell you that.
So avoid the WeWork IPO.
The We Company’s Business Model Is Destined to Fail
WeWork, or The We Company as it is officially known, will die because its business model only works in good economic times.
WeWork leases out a certain number of floors in a building. It then sets them up to be nice and pretty with lots of high-end amenities and then rents out shared workspaces or individual offices for a premium rate.
It’s like a micro–timeshare business. Yet by aiming at the luxury market, targeting roughly one-third of tenants being businesses and the rest being consumers, the question is what happens to rental rates in a recession?
Demand Will Crater and So Will WeWork
Ed Butowsky, Managing Partner at Chapwood Capital Investment Management, answers that question for CCN:
“Demand will fall, pushing rents lower. WeWork will still have to make good on its own leases, which it took out loans to pay for, and bankruptcy could become a real risk.”
This cascading effect has been seen before. A perfect analogy is in the form of the hotel industry during the last recession.
Hotels operate almost exactly the same way as WeWork,