Coworking company WeWork announced on Friday, August 18, 2023 that it would be conducting a 1-for-40 reverse stock split in an effort to boost its struggling share price.
WeWork’s stock price has declined steadily since its tumultuous IPO in September 2019. After debuting at $14.21 per share, the stock has sunk as low as 14 cents per share in recent months. With the reverse split, every 40 shares of WeWork stock will be consolidated into a single share, effectively increasing the stock price 40-fold.
The primary goal of the reverse split is to help WeWork meet the New York Stock Exchange’s listing requirement that a company’s shares trade at a minimum of $1 per share for 10 consecutive days. WeWork’s stock has been trading below $1 for over a year, putting it at risk of being delisted.
While the reverse split will mechanically increase WeWork’s stock price, it is unlikely to have a lasting positive impact on the company’s fundamentals or market capitalization. WeWork continues to lose money, posting a $1.9 billion net loss in the first half of 2023 alone.
Reverse splits frequently lead to a temporary pop in the stock price as supply is condensed. However, the underlying business challenges facing WeWork still remain. It is uncertain whether this financial engineering will restore investor confidence after the company’s failed IPO and volatile history.
Some analysts are skeptical that WeWork can achieve sustainable profitability given its substantial losses and high overhead costs. The reverse split does not change the number of shares outstanding or the market capitalization, only the per share price.
WeWork is hoping the higher nominal share price will reduce volatility and shore up its financial position. However, reverse splits have a mixed track record, and stocks often continue declining in the long run if the business fundamentals do not improve. For now, WeWork faces an uphill battle to right the ship and deliver on its vision.
