6 ms·

There's only so much fat you can trim. Even if you managed to automate everything, fired everyone and just let Jack run it on his own, you're looking at a max

by mason55 11y ago

There's only so much fat you can trim. Even if you managed to automate everything, fired everyone and just let Jack run it on his own, you're looking at a max of $1.5b profit/year. With no prospect for growth that $12B market cap is going to collapse very rapidly. Right now they are trying to find other niches to fill so they can continue to grow, they are just not doing it very successfully.

morgante 11y ago
> $1.5b profit/year If they actually got to $1.5b annual earnings, they could definitely justify a $12b cap. A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry. I'm not enthusiastic about Twitter and certainly wouldn't buy the stock, but the company also definitely isn't "worthless." There's certainly a path to profitability.
- mason55 11y ago
  > A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry. In this scenario they have fired everyone and given up trying to grow. A P/E of 8 would be way overvalued.
  - khuey 11y ago
    You would only have to pay out 360 million a year to shareholders on a market cap of 12B to get a 3% dividend yield. It may not be sexy, especially in Silicon Valley, but Twitter could be a perfectly viable company.
    - sgt101 11y ago
      But that's the problem they have - the market is/was bought in on the basis that this is a $40bn company (or more), the price reflects an massive upside belief, but the reality is $12b is about right. So - sack a lot of people, cut costs, hold cash in the business and disappoint investors... Will the investors wear that though?
  - morgante 11y ago
    > A P/E of 8 would be way overvalued. I disagree. For one thing, a P/E of 8 is standard for industries which most think are either declining or entirely stable. Benjamin Graham used 8.5 as a "no-growth" P/E so it's hardly insane. [1]https://en.wikipedia.org/wiki/Benjamin_Graham_formula https://en.wikipedia.org/wiki/Benjamin_Graham_formula Moreover, even without feature expansion, I do think Twitter will see growth, though that growth will be minimal. At the very least they stand to benefit from the ever-increasing number of people on the internet.
  - kevinpet 11y ago
    A P/E of 8, in today's interest rate environment, means the company is actually failing and you're buying a decreasing future stream of revenue. Out of the S&P 500, there are four companies with P/E below 8 (Delta, Noble Corp (oil rigs), Yahoo, and Valero (oil again)).
sulam 11y ago
Keep in mind that a lot of their costs are rapidly declining as the stock price goes down. This is the piece of a GAAP earnings statement that doesn't make a lot of sense to me. If the market loves what they're doing, and the stock goes up, then what they were paying people suddenly becomes unreasonable, and they get hammered for not controlling costs? I just don't get it. Anyway, I sold all the shares I could at $51, and then sold everything else at $31, so I clearly didn't feel like the price was worth that, but $12B for the company seems a little low to me. Given current news is likely to be taken as a reason to sell, it wouldn't surprise me at all to see the company get bought. Which I guess could push the stock up a little bit, like it did last week, but it would take months of that to get people's compensation back to where it was with RSUs that were handed out a year ago.
- at5 11y ago
  Investors compare earnings quality across all sectors. Very very few companies trade at 8x revenue. Tech companies typically get a premium because they usually are quasi monopolies (See MSFT at 4x EV/Rev) and have solid growth rates. If you're not adding users, it means your growth is in question; how do you then justify an 8x multiple? For reference most run of the mill companies trade somewhere around 1x revenue. Why would their costs go down rapidly; stock based comp? Typically stock based comp has a strike price lower than the current share price. So they save but maybe not as much as the stock price collapse might suggest. Also, they'd still be unprofitable. A lot of professional investors feel they should cut costs, focus on periscope, and start making money off the new organisations that make money off of having access to information now. Things like charging the times and the journal for a live feed from ground action in Syria.
  - sulam 11y ago
    Yes, stock-based comp (primarily in the form of RSUs, not ISOs) are a large part of their overall costs. Professional investors should stick to investing, product management is clearly not their strong suit based on this laundry list of proposals. :)
    - 11y ago

by mason55 11y ago

morgante 11y ago

> $1.5b profit/year If they actually got to $1.5b annual earnings, they could definitely justify a $12b cap. A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry. I'm not enthusiastic about Twitter and certainly wouldn't buy the stock, but the company also definitely isn't "worthless." There's certainly a path to profitability.

mason55 11y ago
> A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry. In this scenario they have fired everyone and given up trying to grow. A P/E of 8 would be way overvalued.
- khuey 11y ago
  You would only have to pay out 360 million a year to shareholders on a market cap of 12B to get a 3% dividend yield. It may not be sexy, especially in Silicon Valley, but Twitter could be a perfectly viable company.
  - sgt101 11y ago
    But that's the problem they have - the market is/was bought in on the basis that this is a $40bn company (or more), the price reflects an massive upside belief, but the reality is $12b is about right. So - sack a lot of people, cut costs, hold cash in the business and disappoint investors... Will the investors wear that though?
- morgante 11y ago
  > A P/E of 8 would be way overvalued. I disagree. For one thing, a P/E of 8 is standard for industries which most think are either declining or entirely stable. Benjamin Graham used 8.5 as a "no-growth" P/E so it's hardly insane. [1]https://en.wikipedia.org/wiki/Benjamin_Graham_formula https://en.wikipedia.org/wiki/Benjamin_Graham_formula Moreover, even without feature expansion, I do think Twitter will see growth, though that growth will be minimal. At the very least they stand to benefit from the ever-increasing number of people on the internet.
- kevinpet 11y ago
  A P/E of 8, in today's interest rate environment, means the company is actually failing and you're buying a decreasing future stream of revenue. Out of the S&P 500, there are four companies with P/E below 8 (Delta, Noble Corp (oil rigs), Yahoo, and Valero (oil again)).

sulam 11y ago

Keep in mind that a lot of their costs are rapidly declining as the stock price goes down. This is the piece of a GAAP earnings statement that doesn't make a lot of sense to me. If the market loves what they're doing, and the stock goes up, then what they were paying people suddenly becomes unreasonable, and they get hammered for not controlling costs? I just don't get it. Anyway, I sold all the shares I could at $51, and then sold everything else at $31, so I clearly didn't feel like the price was worth that, but $12B for the company seems a little low to me. Given current news is likely to be taken as a reason to sell, it wouldn't surprise me at all to see the company get bought. Which I guess could push the stock up a little bit, like it did last week, but it would take months of that to get people's compensation back to where it was with RSUs that were handed out a year ago.

at5 11y ago
Investors compare earnings quality across all sectors. Very very few companies trade at 8x revenue. Tech companies typically get a premium because they usually are quasi monopolies (See MSFT at 4x EV/Rev) and have solid growth rates. If you're not adding users, it means your growth is in question; how do you then justify an 8x multiple? For reference most run of the mill companies trade somewhere around 1x revenue. Why would their costs go down rapidly; stock based comp? Typically stock based comp has a strike price lower than the current share price. So they save but maybe not as much as the stock price collapse might suggest. Also, they'd still be unprofitable. A lot of professional investors feel they should cut costs, focus on periscope, and start making money off the new organisations that make money off of having access to information now. Things like charging the times and the journal for a live feed from ground action in Syria.
- sulam 11y ago
  Yes, stock-based comp (primarily in the form of RSUs, not ISOs) are a large part of their overall costs. Professional investors should stick to investing, product management is clearly not their strong suit based on this laundry list of proposals. :)
  - 11y ago