As WeWork bleeds cash, Bernstein lays out 4 ways the struggling company can stay afloat

Reuters

• While WeWork has absorbed huge blows to its reputation and questions about its business model, Bernstein analyst Chris Lane says it's possible the company could survive and stay in business.
• Lane lays out four ways WeWork could endure, although all of them have the flashy startup slashing its spending and cutting its future growth dramatically - possibly to zero.
• If it doesn't change course, WeWork will run out of funds in the spring and will need $6 billion to continue its operations for the next few years, according to Lane.
• Alternatively, if WeWork adopts Lane's least costly idea, he says it will still need $1.5 billion in new funding.
• Read all of Business Insider's WeWork coverage here.

There are a lot of dark clouds swirling around WeWork, but according to Bernstein senior research analyst Chris Lane, the flexible office space company still has a shot to survive.

While some experts are arguing that WeWork is headed for bankruptcy or is nearly worthless, Lane writes that with some big changes, the company might be able to attract enough investment and stay afloat long enough for its business to stand on its own.

He's put together four paths the company could take to get there. Lane's proposals have a few points in common, including a major restructuring that would slash spending. He estimates that effort will cost the company $200 million. And WeWork will need at least $1.5 billion in additional funding to complete any of them.

The company scrapped its proposed IPO as questions about cofounder Adam Neumann's leadership and its business mounted. Lane says any future effort to raise money is going to require a major effort to show potential backers that the company has changed in both cultural and business terms since Neumann gave up the CEO position.

If WeWork pursues any of these courses, Lane says, it will be a slower-growing and much less valuable company than the one it appeared to be as recently as this summer. For context, his turnaround base case estimates the company will have an enterprise value of $24 billion in 2020 - a far cry from its $47 billion private valuation peak - and revenue of $43 billion in 2035, assuming it stays in business.

Then again, even diminished growth is better than where WeWork appears to be heading now, as Lane he said it only has enough funds to last until next spring.

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"In our base case they need a total of $6 billion in incremental funding in order to see themselves through to cashflow positive operations," he wrote, noting that if there's a recession that hurts demand for office space, it could need as much as $8 billion without other changes.

With all of that established, here are the four scenarios that could keep WeWork afloat:

(1) Get the cash

In this scenario, WeWork tries to become cash flow positive as fast as possible, develops the remaining leases it's signed and doesn't seek any more of them. That would allow it to cut overhead. To complete that plan it would still need $1.5 billion in new funding, according to Lane's estimates.

If that happened, Lane said WeWork's enterprise value would be $11.5 billion next year, or about half what its value would have been. He said the company's revenue could reach $7 billion in 2025 and grow at the rate of inflation after that.

(2) Steady and slow

Lane said WeWork's best option might be becoming cash flow positive from operations, and then resuming its attempts to grow - but only at a rate it can fund on its own. It would need another $2 billion in funding to get to that point, not that much more than the $1.5 billion in will need if it foregoes expansion altogether.

That approach would allow for much more growth in the future than the first option, and in 2020 it would make the company worth $15.8 billion according to his estimates. He said its revenue could climb to $36.5 billion in 2035.

Read more: Morgan Stanley breaks down how the next market downturn could upend what even the most prepared investors are expecting

(3) Finish its current pipeline

Here, WeWork would finish working up its current pipeline of properties over the next three years and then expand at a slower pace, again based on how much growth the company can afford to pay for without raising more money. That results in a company with $10.7 billion in annual revenue in about three years.

However it produces a value of $16.4 billion for WeWork, only a bit more than the previous plan. And the company would need $5.4 billion in funding to do it, or almost as much as Lane thinks it needs under its current expansion plan.

4. Take five (years)

Lane suggests the company could complete its existing growth plan, but do it over five years instead of three, and then fund its own growth after that. That pace would allow WeWork to generate $34 billion in revenue in 2035, and the company would need $3.9 billion in additional funding to get to that point.