WeWork’s Annual Loss Doubles to Nearly $2B Amid Rapid Expansion
I&#x27;m seeing a lot of people in this thread balking at the $2B in losses. The thing is that aggregate profit is a terrible metric for measuring companies that have a recurring revenue model with high upfront costs (as WeWork, Uber, and many other tech startups do).<p>The reason for this is profit doesn&#x27;t factor in investments. Let&#x27;s say I invest $1200 to acquire one customer who pays me $100&#x2F;month. If you look at month 0, I have -$1200 in profit. At first glance, this looks really bad. Alternatively, you can see it as I am now making $100&#x2F;month. Because of the $100&#x2F;month, after one year I&#x27;ll have made my original investment back and still be making $100&#x2F;month. After two years, I&#x27;ll have made a profit of $1200.<p>This is probably exactly what&#x27;s happening here with WeWork. If you look at things in aggregate, WeWork is spending a ton of money investing in opening new offices while they make a much smaller amount of money from their old offices. This makes them look like they are lighting money on fire. In reality they are investing their money in new offices and expect each office to make a return on investment over a few years. As long as they are spending more money investing in new offices than they are making from the old ones, they will appear unprofitable.<p>For a typical software business, a pair of metrics that are much better than profit are CAC (cost of acquiring a customer) and LTV (the life time value of a customer). As long as a product&#x27;s LTV is sufficiently greater than CAC (a successful SaaS company typically has LTV &gt; 3 * CAC), it makes sense to invest more money into the business.<p>This For Entrepreneurs post goes in great depth about good ways to measure a SaaS business and gives you a few models you can play with: <a href="https:&#x2F;&#x2F;www.forentrepreneurs.com&#x2F;saas-metrics-2-definitions-2&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.forentrepreneurs.com&#x2F;saas-metrics-2-definitions-...</a><p>Now all of this doesn&#x27;t mean that WeWork is a healthy business. All it means is that we can&#x27;t tell based on how much money they are losing alone.