During the rise of WeWork, I’ve had many friends dismiss the company as an unprofitable house of cards.

I’ve defended the company, arguing that WeWork has a simple but brilliant model that gives it a huge advantage over conventional office space, which I summarize as follows:

Convince people to accept 50% as much square footage per employee, and then charge them 50% more per square foot, so that they’re saving 25% on rent (0.5 X 1.5 = 0.75).

The problem is, WeWork’s S-1 filing shows nothing of the kind.

WeWork’s biggest traditional rival is IWG, the artist formerly known as Regus. Recode offered a simple chart comparing the two companies, from which I’ll be drawing data to drive my conclusions.

WeWork has 45 million square feet of space, representing 604,000 “workstations” (the office equivalent of a “room” in the hotel business), and generated $1.8 billion in revenue in 2018.

IWG has 50 million square feet of space, representing 547,000 “workstations,” and generated $3.4 billion in revenue in 2018.

Now let’s do the math. WeWork’s average workstation is 74.5 square feet, and generates $2,980 per year, or $40 per sf/year.

IWG’s average workstation is 91.4 square feet, and generates $6,216 per year, or $68 per sf/year.

The good news is that WeWork is convincing people to accept 18.5% less space…but is it enough?

WeWork’s revenue per square foot figure may be low, because its 100% growth rate means that trailing numbers like 2018 revenues are an underestimate. Fortunately, the S-1 also tell us 2019 1H revenues were $1.54 billion, which is nearly the 2018 total. Doubling it results in a $3.08 billion run rate, which makes the revenue a much healthier $68 per sf/year…which, conveniently enough, is exactly what IWG generates.

But of course, WeWork’s costs are higher; IWG actually recorded a profit of $500 million in 2018, which means its costs were roughly $2.9 billion, or $58 per sf/year, for an operating margin of $10 per sf/year.

Meanwhile, WeWork’s operating loss (not cost) was $1.37 billion in 1H 2019, for an annualized expense base of $5.82 billion, or $129 per sf/year.

So to recap, WeWork charges the same amount per square foot as IWG, but WeWork customers save money because they’re buying 18.5% less square feet per employee. Unfortunately, WeWork’s costs are more than double those of IWG, which means that overall, WeWork is losing $61 per sf/year, in comparison to IWG’s profits of $10 per sf/year.

WeWork’s amenities and programming make it unlikely to ever be able to reduce its costs below those of IWG. Assuming it’s even possible, WeWork needs to double its occupancy rate to make a profit. But WeWork reports that its current occupancy rate is 80%, so it needs to achieve 160% occupancy to make money.

The WeWork model can succeed, but unless it is able to convince its customers to pay a premium for its space, it will need to double the current density of employees per square foot.