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Illustration: Aïda Amer/Axios

Apparently investors love to read IPO prospectuses in August, because both Peloton and WeWork unveiled their S-1 filings last month.

The big picture: The two companies are similar in that they both spend a lot of money on sales and marketing, which they then attempt to recoup over time with monthly payments from their customers.

The big question: How much time does a customer need to remain a customer before a company becomes profitable?

In the case of Peloton, the answer is "almost immediately." Customer acquisition costs are roughly equal to the markup on the company's bicycles and treadmills. After that, Peloton makes money every month that the customer pays $39 for a fitness subscription.

  • But, but, but: Peloton's losses have been rising along with its revenues. As the NYT's Erin Griffith reports, "competitors and copycats are moving in aggressively," often at significantly lower price points. If Peloton wants to maintain or increase its market share, its customer acquisition costs are probably going to increase over time.

WeWork's financials are harder to understand. Rett Wallace, the CEO of private-company intelligence firm Triton, has called the company's S-1 "a masterpiece of obfuscation." It's therefore hard to work out exactly what WeWork's customer acquisition cost is. But Wallace estimates that a tenant needs to stay in place for 13.5 years, on average, before they break even for the company.

  • Between the lines: WeWork's value proposition is that it doesn't lock tenants into long leases. But the company's accounting hides the cost of finding new tenants to replace ones who move out.
  • How it works: After a location has been open for 24 months, its sales and marketing expenses no longer appear in WeWork's corporate sales and marketing budget, and instead are incorporated into the individual budget for the location itself. Shareholders therefore have no way of seeing WeWork's total sales and marketing expenses.

The bottom line: "Customer acquisition costs always go up, not down," says Wallace. Anybody buying into the WeWork or Peloton IPOs should bear that in mind as they try to model when and whether either company might become profitable. In the case of WeWork, the company itself seems to be asking similar questions.

Go deeper: WeWork CEO returns $5.9 million "trademark payment" to the company

Go deeper

2 mins ago - World

Scoop: Ukraine tells senators post-invasion sanctions are no help

Zelensky. Photo: Johanna Geron/POOL/AFP via Getty Images

Ukrainian President Volodymyr Zelensky told U.S. senators visiting Kyiv this week that waiting to impose sanctions on Russia until after an invasion is of no use to Ukraine, according to four sources familiar with the discussions.

Why it matters: The Senate is currently working on a major sanctions package to deter Russia from attacking Ukraine. Democrats and Republicans are united in their support for Ukraine, but divided over whether it would be more effective to sanction Russia now to signal resolve, or hold up the threat of future sanctions to demonstrate the high costs of an invasion.

Starbucks drops worker vaccine or test requirement after SCOTUS ruling

Photo: Jakub Porzycki/NurPhoto via Getty Images

Starbucks has dropped plans to require that U.S. workers get the COVID vaccine or submit to weekly testing, the company announced Tuesday in a memo to employees.

Why it matters: The company's decision comes in response to the Supreme Court's ruling last week to block the Biden administration's COVID-19 vaccine-or-test requirement for large employers.

4 hours ago - World

Netanyahu plea talks enter crunch time

Netanyahu (right) meets with his lawyer ahead of a court hearing last February. Photo: Reuven Casto/Pool/AFP via Getty

Benjamin Netanyahu, Israel's opposition leader and former prime minister, is negotiating a possible plea deal over the corruption charges against him, but Attorney General Avichai Mandelblit appears to be toughening his terms.

Why it matters: Mandelblit leaves office on Jan. 31. Negotiations could continue beyond that point, but the next attorney general may be less interested in quickly reaching a deal.