Conjuring profits out of thin air can make capital disappear

WHAT’S a profit? A recent ill-tempered television appearance by the co-founder of home-flipper Opendoor Technologies, Keith Rabois, showed just how far we have drifted from a common understanding of earnings.

Rabois, a Miami venture capitalist, was irritated by his interlocutor’s (not unreasonable) suggestion that Opendoor is loss-making. Net losses total US$1.7 billion since inception, according to the latest accounts, and the quarter that just ended will likely be ugly due to falling house prices.

But on a “per home basis” – also known as “contribution margin,” which excludes groupwide costs such as marketing and technology development – Opendoor has consistently made money for years, Rabois argued. The clash reflects the extraordinary proliferation of alternative financial performance measures during an era of “free money”, when investors were focused on top-line growth over bottom line earnings.