4 ms·

This is what happens when you continually base valuations on number of users, rather than, say, revenue, or profitability. Yes, a user base can be an indicator

This is what happens when you continually base valuations on number of users, rather than, say, revenue, or profitability. Yes, a user base can be an indicator of a company with traction - but if there's no revenue, or no functioning model which will lead to revenue... the value is entirely hypothetical, and based on weak foundations. I expect to see a lot more of this sort of thing, which will culminate in the current bubble conclusively popping. It'll only take a few more S&P announcements like this to cause a panic sell-off, at which point... let's party like it's 1999.

cmdkeen 12y ago
Well it is also the difference between bonds and equities. You might value a company on users if you think it could monetise them down the line for equities as you will share in that. Bonds however just rely on the company having cashflow to pay the interest and then repay the capital. Number of users, future profit etc are much less meaningful compared to whether you will get your money back as promised.
jrallison 12y ago
It's not hypothetical. Twitter has significant revenue. When revenue is generated from eyeballs (ads), then yes, number of users and engagement is a valuable metric (yet not the only one).
- danieltillett 12y ago
  The problem is Twitter has even more significant expenses. What worries the bond rating agencies is if this will ever change.
  - jrallison 12y ago
    Of course. I wasn't challenging the bond rating, just the parent's notion that user engagement isn't a valuable metric for Twitter.
    - danieltillett 12y ago
      User engagement is not valuable to a bond holder since they see none of the upside. The only thing they care about is can twitter pay on time.
      - harryjo 12y ago
        engagement -> ad views -> revenue -> bond payment
nikcub 12y ago
Twitter's valuation isn't based on users - the stock is down ~35% this year despite user growth being 22% and revenue more than doubling. The stock is being trashed because they missed earnings. The S&P report itself said Twitter is experiencing very strong growth and little competitive pressure. It was downgraded because Twitter are investing their cash rather than hoarding it. Bond holders want companies to hold cash. What is good for bond holders is usually different to what is good for stock holders. The long case on Twitter is that the fundamentals are good, the company is growing like crazy and that the market is undervaluing based on earnings which mostly missed because of one-off employee option and other writedowns as well as reinvestment.
- jacquesm 12y ago
  It's really funny that within 12 months of an IPO a company can be scolded for investing their cash rather than hoarding it. Hilarious, really.
- jon-wood 12y ago
  > The long case on Twitter is that the fundamentals are good. I'm not sure I agree with that statement. They've got a lot of users, many of which love the service, but as a business the fundamentals are far from sound. I'm yet to be convinced that paid advertising is a model that will work on Twitter, and I can't really see any other model beyond persuading people to pay to hide the adverts (which destroys their advertiser base). Twitter started as a hobby side project to communicate between a few friends, not a business, and you can see that in everything they do.

cmdkeen 12y ago

Well it is also the difference between bonds and equities. You might value a company on users if you think it could monetise them down the line for equities as you will share in that. Bonds however just rely on the company having cashflow to pay the interest and then repay the capital. Number of users, future profit etc are much less meaningful compared to whether you will get your money back as promised.

jrallison 12y ago

It's not hypothetical. Twitter has significant revenue. When revenue is generated from eyeballs (ads), then yes, number of users and engagement is a valuable metric (yet not the only one).

danieltillett 12y ago
The problem is Twitter has even more significant expenses. What worries the bond rating agencies is if this will ever change.
- jrallison 12y ago
  Of course. I wasn't challenging the bond rating, just the parent's notion that user engagement isn't a valuable metric for Twitter.
  - danieltillett 12y ago
    User engagement is not valuable to a bond holder since they see none of the upside. The only thing they care about is can twitter pay on time.
    - harryjo 12y ago
      engagement -> ad views -> revenue -> bond payment

nikcub 12y ago

Twitter's valuation isn't based on users - the stock is down ~35% this year despite user growth being 22% and revenue more than doubling. The stock is being trashed because they missed earnings. The S&P report itself said Twitter is experiencing very strong growth and little competitive pressure. It was downgraded because Twitter are investing their cash rather than hoarding it. Bond holders want companies to hold cash. What is good for bond holders is usually different to what is good for stock holders. The long case on Twitter is that the fundamentals are good, the company is growing like crazy and that the market is undervaluing based on earnings which mostly missed because of one-off employee option and other writedowns as well as reinvestment.

jacquesm 12y ago
It's really funny that within 12 months of an IPO a company can be scolded for investing their cash rather than hoarding it. Hilarious, really.
jon-wood 12y ago
> The long case on Twitter is that the fundamentals are good. I'm not sure I agree with that statement. They've got a lot of users, many of which love the service, but as a business the fundamentals are far from sound. I'm yet to be convinced that paid advertising is a model that will work on Twitter, and I can't really see any other model beyond persuading people to pay to hide the adverts (which destroys their advertiser base). Twitter started as a hobby side project to communicate between a few friends, not a business, and you can see that in everything they do.