How did WeWork get such a high valuation if its making such big losses?
After some debate in the office and lots of commentary from various talking heads about the subject, I sat down and read the company’s S-1 filing and kept reading until I’d figured it out because it was driving me nuts. And the fact is, yes they do make money, and yes they probably will make a lot more.
See that little green bar in the middle, that’s their real operating profit on each location or ‘Contribution Margin’ as they like to call it. Out of $1.349bn in revenues, they made $142m in cash operating profits. And if they consider rent free periods in the calculation then from an accounting perspective that profit goes up to $340m. Realistically a 10%-25% operating margin on each building, and the buildings are largely self-sustaining after stabilisation, and have 15 year leases. So that’s 15 years of 10%-25% operating margin.