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The simple answer is that a share price is the present price to pay for the future cash flows of the company. Just because they aren't making money now doesn't
by nonchalance 13y ago
The simple answer is that a share price is the present price to pay for the future cash flows of the company. Just because they aren't making money now doesn't mean that will always be the case. If twitter starts making billions of dollars soon, and starts paying that out to investors, then everyone makes money.
They "eventually foot the bill" if twitter doesn't make money. Your cynicism reflects the fact that many companies don't end up making enough money. But there are counterexamples like GOOG where joe public actually did fairly well
- brymaster 13y ago> Just because they aren't making money now doesn't mean that will always be the case. This is dangerous speculation.
- Karunamon 13y agoWelcome to VC. But seriously, that's the stock market for you. Gambling with lots and lots of rules.
- nonchalance 13y agoIt's also dangerous to assume that all companies must be profitable from day one. Facebook is a good example of a company that was "losing money" but was able to turn profits recently. Which is not to say that I believe twitter deserves the market cap currently implied by the share price.
- brymaster 13y agoFacebook is also a good example of a company with its business model out of whack, meaning this ride isn't going to last.
- rsobers 13y agoThat's the nature of investing in stocks. If you want something guaranteed, open a savings account.
- foobarqux 13y agoUnless you're in Cyprus.
- deleted 13y ago[deleted]
- potatolicious 13y agoIt is dangerous, that's the whole point. Investors are expecting high returns - this is not exactly a slow-growth stock, and they've taken a commensurately high risk in exchange.
- tedunangst 13y agoNote that GOOG hasn't actually paid out any of its cash flow to investors.
- nonchalance 13y agoUntil recently, neither has AAPL. Doesn't mean the cash disappeared. GOOG has 56.52B in cash and short-term investments (as of end of september). It's on GOOG's books but could easily be paid out (either directly or in the form of a share buyback)
- nkohari 13y agoThe market prices stock accordingly, though. Google reinvesting cash into the business is why their stock is now over $1,000 a share.
- corford 13y agoI find it hard to accept that a rational person thinks twitter will ever have the profit earning capability of Google. It just seems nuts to me to justify twitter's future earnings potential on a black swan event. Speculation on the other hand I can sort of understand and accept (although it's kind of sad that the speculation is driven entirely by hype rather than any kind of solid metrics).
- clarky07 13y agoIt doesn't have to have the earning potential of Google to be successful. It's valuation is 1/10th of Google's.
- tedunangst 13y ago1/10th of the earning potential of google is still... substantial.
- corford 13y agoFair point
- nl 13y agoI find it hard to accept that a rational person thinks twitter will ever have the profit earning capability of Google. It just seems nuts to me to justify twitter's future earnings potential on a black swan event. I don't think anyone has claimed Twitter is going to be as efficient as Google at making money. But TV stations make a lot of money, and Twitter has a closer relationship to its users than a TV station. Twitter also has more users than most TV networks have viewers. It's hardly a black swan to follow a model that has been proven to work over 50 years (ie, advertising around entertainment). speculation is driven entirely by hype rather than any kind of solid metrics Why do you say that? There are very solid metrics on Twitter's user base, and very solid metrics around what an average user is worth to an advertiser, either on the web or on a mobile device.
- seiji 13y agoand starts paying that out to investors That part doesn't actually happen anymore these days rendering most of these new tech stocks very complex insider wealth generating schemes.