You may have noticed in the press recently the headlines associated with WeWork and its financial troubles. These issues came to a head last week and SoftBank, one of the original investors in WeWork, essentially bought out the company for a fraction of its previous value. At one point the company was valued at over $40 billion. The bailout values the firm now at about $8 billion. This 80% collapse happened within a one-year time frame.
Controversy ensued as it was reported that the founder was set to walk away with close to $1.5 billion as the company continues to spiral downward. It is expected that layoffs will be significant and will occur in the near future according to recent communications from new management.
CNN outlined the latest headlines regarding the very golden parachute received by the former CEO in a recent article:
The golden parachute for Neumann was included in a SoftBank rescue deal, formally announced late Tuesday, that will pump billions more into the embattled company after its failed IPO. Neumann will get the ability to sell up to $970 million in stock back to SoftBank, receive a $500 million loan to repay a credit line, and a $185 million fee for consulting for SoftBank, according to a person familiar with the matter.
The bailout leaves Softbank in control of the company and to clean up the mess left behind by Neumann. In company-wide emails sent Wednesday, obtained by CNN Business, WeWork leadership attempted to level with staffers about the remaining questions facing the business. Later, there was an all-hands meeting led by Marcelo Claure, SoftBank's chief operating officer who became WeWork's executive chairman as part of the deal.
At the meeting, Claure addressed a question about the payment to Neumann by acknowledging the work he had done for the company, according to two sources familiar with the meeting. Claure explained that while the steps SoftBank took were expensive, they were necessary for it to take control of the business, and that Neumann will serve as a consultant to SoftBank and will have a non-compete clause, a third person familiar with the meeting said.
Source: October 23, 2019 CNN.com article by Sara Ashley O'Brien
What I would like to point out about this WeWork fiasco is something that should be obvious but is often forgotten in the midst of hype and hysteria. Companies need to have a plan to make money. If they do not, at some point the party ends as was the case with WeWork.
We are believers that fundamental analysis gives one the best long-term opportunity for success. Our internal analyst team carefully reviews financial details released by companies on a regular basis for signs of growth or problems. If you buy a company with long-term growing cash flow that continues to execute on business initiatives, your odds of success increase.
What is fundamental analysis? Investopedia has a simple summary. They describe it as:
Fundamental analysis (FA) is a method of measuring a security's intrinsic value by examining related economic and financial factors. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management.
The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.
Investors are always looking for the next get rich quick investment. On occasion one pops up just as there are lucky winners at the casino on a daily basis. But investors should also remember that a vast majority of speculative investments end up providing nothing more than tax losses. That’s not the best way to invest money moving towards retirement.
This is not to say that we would not invest in a high-growth company; we would. However, the bar is definitely higher as we believe it is prudent and responsible from an investment standpoint to buy companies with a more predictable financial future.
We have full-time internal analysts and portfolio managers reviewing portfolios and investment assets on a daily basis. I continue to be very involved in the overall research process and our entire team is focused on doing all we can to help you be successful. You can expect that commitment to continue.
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