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This isn't really news. Basically WeWork have just expanded to a lot more locations. 105% increase in revenue, 103% increase in losses. So essentially they're k

This isn't really news. Basically WeWork have just expanded to a lot more locations. 105% increase in revenue, 103% increase in losses. So essentially they're keeping the same revenue, same costs at a larger scale. So the message here is really that they're continuing to execute to their plan- fast expansion. At some point they're going to need to turn all this into profitability, but they're not actually planning to do that right now, so there's no point in judging them for failing to be profitable since they aren't trying. They seem to have plenty of cash on hand (1 year runway in cash plus much more available from softbank). So the losses really aren't a problem. Another thing I've heard is "But during a recession their long term rents will eat capital and demand will collapse". But that might not be true- it may be that they have deep enough pockets to weather a recession, pick up new cheap property in long-term agreements and gain customers. Hear me out: Maybe they can make a play during the recession that their short-term flexible leases are low risk for clients during a recession making them a great choice. It would mean they come out of the next recession with great market share and then can focus the next business cycle on starting to squeeze out those profits. I've got to admit I actually believe they could get to profitability - but the only way I see is by growing to a size where they can drop prices in local areas to force out competition and charge monopolistic prices elsewhere.

sonnyblarney 8y ago
"so there's no point in judging them for failing to be profitable since they aren't trying." Point taken, but, we can definitely 'judge them' in the case of unit profitability. Expansion is one thing, it's loaded with startup costs for each unit - but the key is, 'are the long running installations running at unit profitability, even when accounting for corporate overhead'. That's the first order thing we need to know, because if not, then it's a problem because the only way to make more money would be to jack rent or cut overhead, neither good options. The other thing is of course the inherent risks in their contracts. Are their margins so thin they can't withstand a real-estate shock? What happens when there's a down cycle and they have a lot of empty space? Are their contracts subject to flexibility? Or are they toast? Surely, they're 'always room to negotiate' because if there is a downturn, their landlords will get it on some level and rather WW stick around than have an empty building, but there might not be enough room to manoever given possible overhead of running the place + corporate overhead. And lastly is the sustainability of their advantage. Do people really like the WW brand that much? Or are they betting on juicy corporate contracts with fat margins they can sink their teeth into like Oracle. I think that's where the bulk of the material grey areas reside.

sonnyblarney 8y ago

"so there's no point in judging them for failing to be profitable since they aren't trying." Point taken, but, we can definitely 'judge them' in the case of unit profitability. Expansion is one thing, it's loaded with startup costs for each unit - but the key is, 'are the long running installations running at unit profitability, even when accounting for corporate overhead'. That's the first order thing we need to know, because if not, then it's a problem because the only way to make more money would be to jack rent or cut overhead, neither good options. The other thing is of course the inherent risks in their contracts. Are their margins so thin they can't withstand a real-estate shock? What happens when there's a down cycle and they have a lot of empty space? Are their contracts subject to flexibility? Or are they toast? Surely, they're 'always room to negotiate' because if there is a downturn, their landlords will get it on some level and rather WW stick around than have an empty building, but there might not be enough room to manoever given possible overhead of running the place + corporate overhead. And lastly is the sustainability of their advantage. Do people really like the WW brand that much? Or are they betting on juicy corporate contracts with fat margins they can sink their teeth into like Oracle. I think that's where the bulk of the material grey areas reside.