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Not really. not only did those companies not have profits, they also didn't have any revenues or users. Twitter has > 200 million users, and they are growing re

Not really. not only did those companies not have profits, they also didn't have any revenues or users. Twitter has > 200 million users, and they are growing revenue 100% a year. Dot-com boom was a whole different animal.

nine_k 13y ago
Let's calculate. Twitter revenue was $391M for last 4 quarters [1]. Twitter market cap is currently $24670M, or about 63 times the revenue. If Twitter's revenue grows 100% each year (that is, twice each year), it will take 5 years for them to catch their current market cap with revenue: 1 + 2 + 4 + ... + 32 = 63. But what investors are interested in is not revenue, it's profit. Let's imagine that Twitter discovers a magnificent monetization strategy that gives it 25% margin, like the one Apple enjoys. It would then pay out its market cap in 2 more years (4x growth). This assumes that Twitter will always enjoy unfettered 2x revenue growth and the same high margin each year, while its valuation stands still, as does the dollar inflation. All these assumptions look a bit unrealistic to me, alas. [1] http://www.businessinsider.com/twitter-revenues-2013-10 http://www.businessinsider.com/twitter-revenues-2013-10
- sneaky_ruds 13y ago
  So your argument is that a company's value should be limited by 1 year's profits? Please start a company so that I may buy it from you.
  - nine_k 13y ago
    I projected literally exponential growth of revenue for Twitter. Well, if it does grow exponentially, it won't be bad! Supposedly their costs won't grow as fast, and they'll have some healthy profits. It will be a quite long-term investment anyway. Like, well, when Forrest Gump invested in AAPL.
- clarky07 13y ago
  I didn't say anything as to whether Twitter was over or undervalued, just that it was significantly different than the dot com boom. Hundreds of millions in users and hundreds of millions in revenue is decidedly different than very few users and no revenue. As for your numbers, there is no reason that a company needs to match their valuation with revenue each. That would likely be extremely undervalued. Apple had 170 billion revenue in the last 12 months and a market cap of 465 billion that many people think is undervalued. 63x is excessive, but 1x is silly. >But what investors are interested in is not revenue That's not always true. See AMZN Profit is what I am interested in, and it is what a lot of people are interested though. Why are we comparing it to Apple, a hardware company with huge costs? It makes a lot more sense to compare to Facebook, which enjoys 50% margins. Also, why are we expecting it to have profits = to market cap? Really, 1x pe? Market average is ~15, with lots of companies being higher. If, in 7 years Twitter has profit = to it's current market cap, it is an absolute steal at this price. Like unfathomably good deal. I'm not convinced they will keep growing revenue at 100%, certainly not for 7 years, but I am convinced that they will become profitable due to their low cost structure. I wouldn't be surprised to see 50% margins.
- encoderer 13y ago
  You're doing that math as-if 1x forward PE is a goal or something. Why should the current years revenue have anything to do with market cap?

nine_k 13y ago

Let's calculate. Twitter revenue was $391M for last 4 quarters [1]. Twitter market cap is currently $24670M, or about 63 times the revenue. If Twitter's revenue grows 100% each year (that is, twice each year), it will take 5 years for them to catch their current market cap with revenue: 1 + 2 + 4 + ... + 32 = 63. But what investors are interested in is not revenue, it's profit. Let's imagine that Twitter discovers a magnificent monetization strategy that gives it 25% margin, like the one Apple enjoys. It would then pay out its market cap in 2 more years (4x growth). This assumes that Twitter will always enjoy unfettered 2x revenue growth and the same high margin each year, while its valuation stands still, as does the dollar inflation. All these assumptions look a bit unrealistic to me, alas. [1] http://www.businessinsider.com/twitter-revenues-2013-10 http://www.businessinsider.com/twitter-revenues-2013-10

sneaky_ruds 13y ago
So your argument is that a company's value should be limited by 1 year's profits? Please start a company so that I may buy it from you.
- nine_k 13y ago
  I projected literally exponential growth of revenue for Twitter. Well, if it does grow exponentially, it won't be bad! Supposedly their costs won't grow as fast, and they'll have some healthy profits. It will be a quite long-term investment anyway. Like, well, when Forrest Gump invested in AAPL.
clarky07 13y ago
I didn't say anything as to whether Twitter was over or undervalued, just that it was significantly different than the dot com boom. Hundreds of millions in users and hundreds of millions in revenue is decidedly different than very few users and no revenue. As for your numbers, there is no reason that a company needs to match their valuation with revenue each. That would likely be extremely undervalued. Apple had 170 billion revenue in the last 12 months and a market cap of 465 billion that many people think is undervalued. 63x is excessive, but 1x is silly. >But what investors are interested in is not revenue That's not always true. See AMZN Profit is what I am interested in, and it is what a lot of people are interested though. Why are we comparing it to Apple, a hardware company with huge costs? It makes a lot more sense to compare to Facebook, which enjoys 50% margins. Also, why are we expecting it to have profits = to market cap? Really, 1x pe? Market average is ~15, with lots of companies being higher. If, in 7 years Twitter has profit = to it's current market cap, it is an absolute steal at this price. Like unfathomably good deal. I'm not convinced they will keep growing revenue at 100%, certainly not for 7 years, but I am convinced that they will become profitable due to their low cost structure. I wouldn't be surprised to see 50% margins.
encoderer 13y ago
You're doing that math as-if 1x forward PE is a goal or something. Why should the current years revenue have anything to do with market cap?