From ZeroHedge:
The bizarro world that was unleashed when the world's central banks took interest rates to zero (and in many cases, lower), coupled with purchases of $15 trillion securities, allowed countless profitless companies to flourish and thrive, with fundamental indicators such as profit margin, cash flow and net income now seen as remnants of a bygone era even as the deflationary tide that these companies unleashed upon the world as they scrambled to capture market share by undercutting prices at every point prompted those same central banks to re-evaluate their very understanding of inflation, seemingly unaware of how their actions made deflation the rule rather than the exception.
But while we have seen countless instances of companies with massive revenues generating razor thin, or negative margins, as they effectively deferred profits (indefinitely) in their pursuit of monopolistic market share, i.e., the hope of putting all their competitors out of business at which point they would finally have pricing power and will crank up prices and fees a la Amazon, and have even observed companies which - like Uber and Lyft - generate ever greater losses as their revenues rise, we had yet to encounter the shocking "new abnormal" paradigm that was just revealed by one of the "unicorn" darlings spawned by the era of cheap money.
First, here is the good news.
WeWork, the company whose communal co-working spaces are populating many of the world’s biggest cities, said that revenue last year more than doubled. Now, the not so good: the company also unveiled that its losses are not only growing even faster than its revenues, they are greater than its revenues.
In a presentation sent to CNBC on Monday, WeWork said revenue in 2018 climbed to $1.8 billion from $886 million a year earlier: an impressive increase of more than 100% to be sure. Digging into the financials shows some more commendable trends: members, or the people who pay for monthly use of WeWork’s facilities, jumped to 401,000 from 186,000, accounting for 88% of revenue. The number is even better if one uses the annualized revenue of $2.5 that was revealed by CEO Adam Neumann (who previously popularized the concept of "community-adjusted EBITDA") in January.
Here is where things get especially bizarre: while the company's revenue surged in 2018 to $1.8, this was more than offset by the company's loss, which in 2018 exploded to $1.9 billion, up from $933 million in 2017.
In other words, not only did the company not generate anything remotely close to a profit: you know, the primary reason for a corporation to exist in the first place, but it spent more than $1 for every dollar it brought in as revenue for the second year in a row. Effectively, WeWork is handing out free money and for what reason? Simple: just like Amazon, it is desperate to undercut its competitors on price in hopes of eventually cornering enough of the market and creating enough pricing power allowing it to one day, somehow, generate a profit....MORE
