This may or may not directly apply to twitter, but I really don't understand how unprofitable companies with no direct revenue model get such large valuations based on: number of users, and "potential" to profit from advertising.
Snapchat? Tinder? Twitter? Quora? Tumblr? Etc.
It seems like these are the companies that are viewed as prestigious and noteworthy by the media and startup community. Everybody wants to be the company that gets a massive funding from VC and millions of users. But all of these companies still have yet to prove they can really do it.
The only returns for investors so far is based on the fact that the theoretical valuation keeps going up, and it's self perpetuating. At what point are investors going to expect real earnings to justify the valuation?
Nobody (or very few people) seems to want to solve a real problem, or offer a really useful product that people are actually willing to pay for.
Everybody just wants to get a million users, get a bunch of money from investors, and cross your fingers that maybe one day you can figure out how to actually make the thing profitable. And if it doesn't work out? Well it's somebody else's problem right?
It's sort of funny that, as long as the investor community all agree on $X valuation -- you NEVER need to make a single dollar in profit because the next guy in line will cover your "loss." Or finally some giant will buy you out to acquihire or get rid of competition.
Probably sounds like I'm just a hater and ranting, but just my 2 cents.
Twitter solves a "real problem". Relatively convenient 1:N communication, where N is the number of twitter users and at the same time a method to selectively subscribe to some of those messages by certain criteria (hashtags, selection of users). There is a reason why Television channels love Twitter, it has essentially the same characteristics as traditional broadcast television, plus some form of interactive feedback. That the system is centralised and has few message types is purely coincidental.
The math goes something like 'expected customer lifetime value * number of customers'. Where the lifetime value is based on either some base assumptions about conversion to a premium product or some base assumptions about what they feel they can make of their users in terms of ad impressions or some other relatively low yield income stream. If this yields a huge number then everybody is happy.
This is further inflated by exits such as whatsapp and instagram, after all if they are worth that much then surely this other non-related product will be worth at least as much or more.
In the end, valuations have a pretty high random component and the perceived market can push that up or down tremendously.
Who even knows what drove this company to issue a warning like this, maybe one of their bigger customers is planning a take-over bid. It wouldn't be the first time something like that happened either.
>It's sort of funny that, as long as the investor community all agree on $X valuation -- you NEVER need to make a single dollar in profit because the next guy in line will cover your "loss." Or finally some giant will buy you out to acquihire or get rid of competition.
If companies get swallowed up by the Google/Facebook behemoths like so many do then investors usually get their exit, to make an example of 2 from your list Tumblr was bought for $1bn by Yahoo and Snapchat allegedly had multibillion dollar acquisition offers from Facebook and Google. Apparently the megacompanies don't buy these smaller companies for the value that could be generated by revenue streams from them(when and if), but more a combo of the "strategic advantage" - so their competitors don't snap them up first, or out of a fear that one of them could end up being a direct competitor to them one day, as is the case with the Facebook Instagram acquisition and attempted Snapchat acquisition.
Facebook, Google and LinkedIn already proved it. No investor wants to feel dumb that they didn't invest their money in the "thing that looks just like FB and Google" even if the business model isn't a complete 1:1.
You are mixing together vastly different companies (public, private, mature, start-ups), and then ignoring companies that did make the transition to profit. So yeah, seems a bit like a rant.
Snapchat? Tinder? Twitter? Quora? Tumblr? Etc.
It seems like these are the companies that are viewed as prestigious and noteworthy by the media and startup community. Everybody wants to be the company that gets a massive funding from VC and millions of users. But all of these companies still have yet to prove they can really do it.
The only returns for investors so far is based on the fact that the theoretical valuation keeps going up, and it's self perpetuating. At what point are investors going to expect real earnings to justify the valuation?
Nobody (or very few people) seems to want to solve a real problem, or offer a really useful product that people are actually willing to pay for.
Everybody just wants to get a million users, get a bunch of money from investors, and cross your fingers that maybe one day you can figure out how to actually make the thing profitable. And if it doesn't work out? Well it's somebody else's problem right?
It's sort of funny that, as long as the investor community all agree on $X valuation -- you NEVER need to make a single dollar in profit because the next guy in line will cover your "loss." Or finally some giant will buy you out to acquihire or get rid of competition.
Probably sounds like I'm just a hater and ranting, but just my 2 cents.