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by weard_beard 1038 days ago
Let's say I start a lemonade stand. I sell lemonade for a pretty big markup... say €3 a cup. I add lots of ice to it as well, this is not a good deal for lemonade for the customer... but people seem REALLY thirsty and I am getting a good flow of customers. A local businessman approaches me and says he will lend me money to expand operations. He offers me €5 million. I take his money and I use €1 million to expand operations, I use €3 million to invest in the rights to every street corner in town, and I pocket €1 million. Then the value of the contracts for every street corner in town plummets. Suddenly these street corner contracts are worth €700,000 and I paid €3 million.

Now my business is worth €1.7 million. €3.3 million disappeared and I owe that businessman + interest.

If I sell lemonade for €3 a cup, but I'm only getting 50 customers a day with my expanded operations it will take me 60 YEARS just to pay down the principle.

Even if my product is expensive. Even if it seems like, for a lemonade stand, I'm doing well. Debt, the value of my assets, and mismanagement or corruption can vastly outweigh these factors.
1 comments
cgeier 1038 days ago
To stay in your metaphor: I'm saying I see long queues at all lemonade stands and lots of sold lemonade in my area. This perception doesn't fit with the lemonade business's (WeWork's) EBITDA being negative.

The value of assets (which I doubt WeWork has a lot to begin with, I would assume they rent as well) and the amount of debt doesn't factor in there.

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weard_beard 1038 days ago
I was under the impression that WeWork was basically a commercial real estate company moonlighting an office space renter. I thought they were primarily in the business of buying up and building as much commercial real estate as they could, and the work spaces were incidental to their actual business model. Kind of like how McDonalds isn't really in the business of selling burgers, but owning prime commercial real estate.

The value of commercial real estate is plummeting. I don't know how/if this is reflected in EBITDA.

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