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"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

"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
  For new companies, you are on the money. But twitter has been around for 9 years. It is way past time to draw that line in the sand and turn towards profits. Even ignoring the 9 year history, their user growth curve is flattening, and has been for a year. The second it started to go flat, they should have turned to profits.
  - austenallred 11y ago
    "New" is a relative term. I think there's still some gas in the tank, but if there's no growth in the next couple years Twitter will probably be on a permanent downward trend.
code4tee 11y ago
"I think you possess a fundamental misunderstanding of why this is happening. Could Twitter fire most of its developers and sustainably turn a profit? Yes, it absolutely could. But instead it chooses to invest its would-be profits (and a little more) back into the company, in hopes that they will be even bigger later on." Indeed their only real option at this point is likely to start slashing cost and hope it doesn't impact revenue. I don't disagree with you there. However, realistically this is hard to pull off without sending signals that the ship is sinking and everyone should just go elsewhere.

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
For new companies, you are on the money. But twitter has been around for 9 years. It is way past time to draw that line in the sand and turn towards profits. Even ignoring the 9 year history, their user growth curve is flattening, and has been for a year. The second it started to go flat, they should have turned to profits.
- austenallred 11y ago
  "New" is a relative term. I think there's still some gas in the tank, but if there's no growth in the next couple years Twitter will probably be on a permanent downward trend.

code4tee 11y ago

"I think you possess a fundamental misunderstanding of why this is happening. Could Twitter fire most of its developers and sustainably turn a profit? Yes, it absolutely could. But instead it chooses to invest its would-be profits (and a little more) back into the company, in hopes that they will be even bigger later on." Indeed their only real option at this point is likely to start slashing cost and hope it doesn't impact revenue. I don't disagree with you there. However, realistically this is hard to pull off without sending signals that the ship is sinking and everyone should just go elsewhere.