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...and there's really nothing stopping it from falling much much more. There's really no justification for the value placed on this company--or many other tech

...and there's really nothing stopping it from falling much much more. There's really no justification for the value placed on this company--or many other tech companies that have interesting offerings but haven't actually managed to create a real business. TWTR will likely be marked as a turning point for the 'tech bubble 2.0' when tech companies get put in two camps. Those that are real business and those that are not. I don't think we're in a 1999-esque tech bubble but there are a lot of hyped up companies that aren't real businesses that need to get washed out of the system.

austenallred 11y ago
So a company that does $2B/year in revenue isn't a real business? Overvalued, maybe. But that's real cash.
- anotherangrydev 11y ago
  Yeah, but it took them many years and massive leverage to achieve that. Also, revenue != profit. As of today, they are drowning in debt, there doesn't seem to be a strategy for turning things around and now investors don't even believe in them. Twitter's going down :(
  - boomshucka 11y ago
    Massive leverage? Can you not read a balance sheet? They aren't drowning in debt. They have negative net debt.
    - anotherangrydev 11y ago
      I haven't take a look at their last quarter report but I don't think their situation changed from: http://www.wsj.com/articles/twitter-debt-rated-as-junk-1415911602 http://www.wsj.com/articles/twitter-debt-rated-as-junk-14159... to a healthy one in less than a year. Can you please provide a link to the balance sheet you saw?
      - boomshucka 11y ago
        No, I can't. You can go look at the SEC like everyone else who can be bothered to actually have a clue before making comments. This is public information, there is no need to be so lazy as to not even bother looking. Issuing debt does not mean a company is "drowning in debt". The term "junk" debt does not mean a company is "drowning in debt". If a company has more cash on balance sheet than debt, it's net debt is negative. When they issued this debt they had negative net debt. Now they have negative net debt. They were not, are not and have never been "drowning in debt". Promoting false information about a public company is potentially illegal.
        anotherangrydev 11y ago
        If you owe debt and you are burning through your cash and there is no sign of turning the situation over in the near future, then you are "drowning in debt", IMO, or you will be in a very short time. But that's just me and my "potentially illegal" point of view.
        boomshucka 11y ago
        Again, a minute to look at their financials. There is a thing called the "cashflow statement". They are not "burning through cash". Operating cashflow is positive. Some quarters their capex is larger than operating cashflow, sometimes it's less. So to suggest they are "drowning in debt" only shows no understanding of simple financial matters, and little regard for securities legislation. Not all opinions are valid.
- loganfrederick 11y ago
  But their net income is around -$600 million annually. You can have a business that tells people that if they give you a dollar, you'll give them $1.50. Twitter right now (oversimplified) generates $2 billion in revenue by giving away $3 billion. Of course they could try tightening their financial belts, but that'd probably hurt their growth.
  - boomshucka 11y ago
    This is an incredibly stupid analogy. Twitter doesn't give it's users money. Twitter doesn't give it's advertisers money. They run a high gross margin business. Your analogy would be a NEGATIVE gross margin business. Their cost base is too high right now given the revenue, but there is no reason to think they need to grow at the same rate. Many profitable companies at one stage ran at a loss.
  - btian 11y ago
    > they give you a dollar, you'll give them $1.50 Not sure if you know it, but that is clearly not Twitter's business model. Twitter's costs are mostly fixed, so if it can generate $3B in revenue, it will be profitable.
  - beambot 11y ago
    They could recoup $600M pretty easily.... in employee salaries alone if they relocated out of San Francisco.
- code4tee 11y ago
  "So a company that does $2B/year in revenue isn't a real business?" If management consistently can't find a way to make that level of revenue without spending far more each year then yes it's not a real business. If I bought iPhones at full retail and then sold them for less than I paid I'm sure I could quickly rack up tons of revenue... but this wouldn't be a real business. It's this concept that a lot of 'tech' companies struggle with and why their execs want to focus on 'user growth' and 'revenue' and not normal metrics like 'profit' and 'cost of goods sold.' The later is where it gets real ugly. Yes, there's a 'ramp up period' where costs outweigh revenue, but Twitter has run out of runway. There's no clear sign of how they'll increase revenues to justify their cost of generating that revenue. They could start a slash-n-burn operation but everyone will just read that as the company going under and people will ditch the platform faster than MySpace.
  - austenallred 11y ago
    I think you possess a fundamental misunderstanding of why this is happening. > If management consistently can't find a way to make that level of revenue without spending far more each year then yes it's not a real business. Could Twitter fire most of its developers and sustainably turn a profit? Yes, it absolutely could. Hell, I could do that. "Sales people, keep doing the same thing. All this other expensive overhead is gone." But instead the executives choose to invest the company's would-be profits (and a little more) back into the company, in hopes that they will be even bigger later on. And they're still growing (at a rate faster than expenses are), even beating analyst expectations to this point. The stock drops because analysts are concerned this won't continue to be the case (Wall Street is weird). In a very real way, the only time big tech companies start turning a profit is if they think they are reaching the peak of the revenue they could generate. Until then, it's time for growth. That growth is still very valuable, they're just hot taking profits yet. http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n... Hence, if you're looking at every company to determine if it is profitable or not, you probably come away with a very misleading, "The world is doomed" view of the economy. Companies aren't taking their chips down yet, because they're still confident they'll grow. It seems counter-intuitive, I know, but that's the reality of how companies act, in order to maximize the profits long-term.
- codingdave 11y ago
  It is a real business. But if you cannot turn a profit on 2 billion dollars of revenue, something is very wrong.
  - neonbat 11y ago
    Unless your costs are greater than 2 billion? I mean then you could make 2 billion in revenue and not turn a profit. ( 2 billion - (# greater than 2 billion) ) = (negative #). This is a very basic concept.

austenallred 11y ago

So a company that does $2B/year in revenue isn't a real business? Overvalued, maybe. But that's real cash.

anotherangrydev 11y ago
Yeah, but it took them many years and massive leverage to achieve that. Also, revenue != profit. As of today, they are drowning in debt, there doesn't seem to be a strategy for turning things around and now investors don't even believe in them. Twitter's going down :(
- boomshucka 11y ago
  Massive leverage? Can you not read a balance sheet? They aren't drowning in debt. They have negative net debt.
  - anotherangrydev 11y ago
    I haven't take a look at their last quarter report but I don't think their situation changed from: http://www.wsj.com/articles/twitter-debt-rated-as-junk-1415911602 http://www.wsj.com/articles/twitter-debt-rated-as-junk-14159... to a healthy one in less than a year. Can you please provide a link to the balance sheet you saw?
    - boomshucka 11y ago
      No, I can't. You can go look at the SEC like everyone else who can be bothered to actually have a clue before making comments. This is public information, there is no need to be so lazy as to not even bother looking. Issuing debt does not mean a company is "drowning in debt". The term "junk" debt does not mean a company is "drowning in debt". If a company has more cash on balance sheet than debt, it's net debt is negative. When they issued this debt they had negative net debt. Now they have negative net debt. They were not, are not and have never been "drowning in debt". Promoting false information about a public company is potentially illegal.
      - anotherangrydev 11y ago
        If you owe debt and you are burning through your cash and there is no sign of turning the situation over in the near future, then you are "drowning in debt", IMO, or you will be in a very short time. But that's just me and my "potentially illegal" point of view.
        boomshucka 11y ago
        Again, a minute to look at their financials. There is a thing called the "cashflow statement". They are not "burning through cash". Operating cashflow is positive. Some quarters their capex is larger than operating cashflow, sometimes it's less. So to suggest they are "drowning in debt" only shows no understanding of simple financial matters, and little regard for securities legislation. Not all opinions are valid.
loganfrederick 11y ago
But their net income is around -$600 million annually. You can have a business that tells people that if they give you a dollar, you'll give them $1.50. Twitter right now (oversimplified) generates $2 billion in revenue by giving away $3 billion. Of course they could try tightening their financial belts, but that'd probably hurt their growth.
- boomshucka 11y ago
  This is an incredibly stupid analogy. Twitter doesn't give it's users money. Twitter doesn't give it's advertisers money. They run a high gross margin business. Your analogy would be a NEGATIVE gross margin business. Their cost base is too high right now given the revenue, but there is no reason to think they need to grow at the same rate. Many profitable companies at one stage ran at a loss.
- btian 11y ago
  > they give you a dollar, you'll give them $1.50 Not sure if you know it, but that is clearly not Twitter's business model. Twitter's costs are mostly fixed, so if it can generate $3B in revenue, it will be profitable.
- beambot 11y ago
  They could recoup $600M pretty easily.... in employee salaries alone if they relocated out of San Francisco.
code4tee 11y ago
"So a company that does $2B/year in revenue isn't a real business?" If management consistently can't find a way to make that level of revenue without spending far more each year then yes it's not a real business. If I bought iPhones at full retail and then sold them for less than I paid I'm sure I could quickly rack up tons of revenue... but this wouldn't be a real business. It's this concept that a lot of 'tech' companies struggle with and why their execs want to focus on 'user growth' and 'revenue' and not normal metrics like 'profit' and 'cost of goods sold.' The later is where it gets real ugly. Yes, there's a 'ramp up period' where costs outweigh revenue, but Twitter has run out of runway. There's no clear sign of how they'll increase revenues to justify their cost of generating that revenue. They could start a slash-n-burn operation but everyone will just read that as the company going under and people will ditch the platform faster than MySpace.
- austenallred 11y ago
  I think you possess a fundamental misunderstanding of why this is happening. > If management consistently can't find a way to make that level of revenue without spending far more each year then yes it's not a real business. Could Twitter fire most of its developers and sustainably turn a profit? Yes, it absolutely could. Hell, I could do that. "Sales people, keep doing the same thing. All this other expensive overhead is gone." But instead the executives choose to invest the company's would-be profits (and a little more) back into the company, in hopes that they will be even bigger later on. And they're still growing (at a rate faster than expenses are), even beating analyst expectations to this point. The stock drops because analysts are concerned this won't continue to be the case (Wall Street is weird). In a very real way, the only time big tech companies start turning a profit is if they think they are reaching the peak of the revenue they could generate. Until then, it's time for growth. That growth is still very valuable, they're just hot taking profits yet. http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-no-profits-and-why-it-works http://ben-evans.com/benedictevans/2014/9/4/why-amazon-has-n... Hence, if you're looking at every company to determine if it is profitable or not, you probably come away with a very misleading, "The world is doomed" view of the economy. Companies aren't taking their chips down yet, because they're still confident they'll grow. It seems counter-intuitive, I know, but that's the reality of how companies act, in order to maximize the profits long-term.
codingdave 11y ago
It is a real business. But if you cannot turn a profit on 2 billion dollars of revenue, something is very wrong.
- neonbat 11y ago
  Unless your costs are greater than 2 billion? I mean then you could make 2 billion in revenue and not turn a profit. ( 2 billion - (# greater than 2 billion) ) = (negative #). This is a very basic concept.