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WeWork is about to join the group of multi-billion-dollar technology companies becoming public soon.
Following the filing of its initial public offering, the workspace sharing company released the first quarter financial results. Its revenue more than doubled from last year to $ 728 million, while losses decreased by $ 10 million to $ 264 million.
The financial data also showed that the company was still adopting a single measure that it had created: Community adjusted EBITDA.
Earnings before interest, taxes, depreciation and amortization exclude these expenses and can help investors to get a better idea of a company's situation. Critics have pointed out, however, that the WeWork version seems to remove some operating costs that would normally be included.
The company defines its parameters as "equal to member revenues and services, less adjusted rent, rental costs, and adjusted building and operating expenses."
Viewers have been skeptical since the company unveiled this line item for the first time more than a year ago, some even getting close to the frantic days of the dotcom bubble.
"For those with long memories, this surely reminds us of this series of misleading metrics of valuation, such as the price / look ratios, we observed at the height of the 2000 technology bubble," wrote Albert Edwards. , head of global strategy at Société Générale, in a customer note.
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Edwards was referring to the eyeball market capitalization, a measure adopted by some Internet companies in the late 1990s to help investors assess their value rather than their actual profits.
These metrics survive. About 10 years after the bursting of the Internet bubble, Groupon introduced a personalized financial metric that has been so scrupulously scrutinized by regulators that the company has removed it in the introductory rankings in purse changed. Adjusted consolidated segment operating income, or ACSOI, subtracts marketing expenses.
In 2010, ACSOI reflected a gain of $ 60.6 million. However, using the more normal operating result formula, Groupon recorded an operating loss of $ 420.3 million.
WeWork is another beneficiary of this type of innovative accounting. The company recorded a net loss of nearly $ 2 billion last year. But based on community adjusted EBITDA, you get a profit of $ 467 million.
Neither WeWork nor Groupon have invented jargon that does not conform to generally accepted accounting principles. Firms in the technology sector largely state that their non-GAAP earnings reflect their particular circumstances. But these numbers are often more positive – and higher in earnings press releases – than GAAP figures.
Uber is another company that has published personalized financial data. And the company of traveling cyclists provides a telling tale in more ways than one.
His IPO included a few unique metrics, including adjusted net income from the main platform. For the more curious, this is the way Uber captures revenue from rides and food deliveries, while excluding incentives for drivers and some other costs.
Aside from the jargon, Uber's public debut opened a new path – but not as they would have liked: its cumulative loss of $ 655 million was the biggest dollar loss ever recorded during the first day of trading a company in the United States.
Clearly, Uber and other once-private unicorns have a long way to go to convince shareholders that they can achieve the high level of their valuation.
"Public investors are taking a reactionary, short-term reactionary approach, so that expensive and unprofitable companies are not doing well traditionally," said Michael Arone, chief strategist of US State Street's SPDR strategy. Global Advisors, in a recent note to customers.
From 2001 to 2016, for-profit firms beat the market by an average of 7.9% in the first three years after their initial public offering, while unprofitable firms underperformed the market by 9.7%. average during this period, according to data compiled by the University of Florida Finance Professor Jay Ritter.
As WeWork makes its way into government markets, its debut will be another test of investors' patience for profits – including new business measurement methods.
"Public and private investors are very different – and the speculation and review that precedes earnings announcements and predictions will provide a learning curve for executives and investors," said Arone.
"If the underperformance of these blockbusters became the last straw for unicorns, the bull market could suffer."
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