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Investments are not part of your operating income. Your income only consists of flows that accrue over time. If you make a $1200 investment, the expense associa

Investments are not part of your operating income. Your income only consists of flows that accrue over time. If you make a $1200 investment, the expense associated with the investment is accounted for by spreading that expense over the lifetime of the asset. For a 20 year asset, this would become a $60 expense per year. It's not like it's a new thing that businesses need to invest to to acquire customers. The entire science/discipline of accounting exists to provide accurate metrics of business performance. Its ridiculous to say that "profits are a bad metric" because of this. Also, WeWork is not a software business, since they do not sell software. Why would those metrics apply here when all their money is made through leasing office space?

tfehring 8y ago
That’s the purpose of accounting in principle, but in practice GAAP financials are an incomplete measure of financial performance. In the instant that WeWork acquires a new customer, it realizes no additional income and no change in shareholders’ equity. But assuming its marginal revenue is higher than its marginal cost, the expected present value of its future profits is certainly higher than it was the instant before it acquired that customer.
- metalchianti 8y ago
  I may be wrong but I don't think that last statement is true if the lifetime of the customer/asset is short--especially shorter than expected. The business model seems too new and for me it hasn't proven itself viable.
  - tfehring 8y ago
    You’re right. Replace “marginal revenue/cost” with “marginal expected present value of lifetime revenue/cost” and that statement holds.
- Tyrek 8y ago
  In the immediate instance, no, WeWork does not recognize anything. But in its first month, rental income should exceed the month's depreciation for the same real estate. The fact that income has not kept up implies that occupancy is low. WeWork is fundamentally a real estate/leasing company, not a tech company.
  - tfehring 8y ago
    > In the immediate instance, no, WeWork does not recognize anything. But in its first month, rental income should exceed the month's depreciation for the same real estate. This is accurate. > The fact that income has not kept up implies that occupancy is low. This is inaccurate. (To be clear, occupancy may be low, but WeWork's reported losses don't imply that that's the case.) If WeWork turns around and spends that rental income plus some of its investors' capital on customer acquisition expenses, it will report losses, even if those expenses bring about a net increase in the expected present value of future profits. This is just a result of the timing difference between the recognition of acquisition expenses and the revenue that they produce.

tfehring 8y ago

That’s the purpose of accounting in principle, but in practice GAAP financials are an incomplete measure of financial performance. In the instant that WeWork acquires a new customer, it realizes no additional income and no change in shareholders’ equity. But assuming its marginal revenue is higher than its marginal cost, the expected present value of its future profits is certainly higher than it was the instant before it acquired that customer.

metalchianti 8y ago
I may be wrong but I don't think that last statement is true if the lifetime of the customer/asset is short--especially shorter than expected. The business model seems too new and for me it hasn't proven itself viable.
- tfehring 8y ago
  You’re right. Replace “marginal revenue/cost” with “marginal expected present value of lifetime revenue/cost” and that statement holds.
Tyrek 8y ago
In the immediate instance, no, WeWork does not recognize anything. But in its first month, rental income should exceed the month's depreciation for the same real estate. The fact that income has not kept up implies that occupancy is low. WeWork is fundamentally a real estate/leasing company, not a tech company.
- tfehring 8y ago
  > In the immediate instance, no, WeWork does not recognize anything. But in its first month, rental income should exceed the month's depreciation for the same real estate. This is accurate. > The fact that income has not kept up implies that occupancy is low. This is inaccurate. (To be clear, occupancy may be low, but WeWork's reported losses don't imply that that's the case.) If WeWork turns around and spends that rental income plus some of its investors' capital on customer acquisition expenses, it will report losses, even if those expenses bring about a net increase in the expected present value of future profits. This is just a result of the timing difference between the recognition of acquisition expenses and the revenue that they produce.