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Comment by trymas | Hacker News Reader

Maybe it will seem as a dumb question, but how Twitter can be in the loss (in order of millions of US dollars) since day one, without (IMHO) clear path to profitability and not be bankrupt?

It is growing, but it still has huge losses. Do investors believe it will be hugely profitable 5-10 years from now?

Is this new normal in business?

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To answer your question simply, yes, investors believe it will be hugely profitable in the future. That's the only reason to invest in any company that doesn't make a profit today.

It is not as unreasonable as you might think. Look at how fast Facebook's earnings are growing in the last 2-3 years. Investors hope Twitter can replicate this, even if it is at a smaller scale. Whether they are right or not is obviously up for debate, and you can take part in this debate by buying/selling/shorting Twitter in the stock market.

On top of that, what kind of revenue do the ads bring in?

They've done a good job upping revenue over the last few years (somewhere north of a billion dollars/yr in 2014). And, IMHO, done so without the resulting ads being too obtrusive.

Their problem isn't that they can't make money. It's that their valuation means investors expect them to make a ridiculous amount of money. So all revenues are plowed back into R&D.

That's a bit of an accounting smell, isn't it? Obviously Twitter should have some costs other than R&D, like labor and servers. Even if we say the rest is going to R&D, that's kind of a black box. It doesn't prove that they aren't simply recording reasonable recurring costs correctly while hiding bizarre business-killing recurring costs in R&D.

They're a publicly traded company with a "big-4" auditing firm to make sure that doesn't happen. The law is very clear on what counts as CapEx and OpEx. Obviously, companies occasionally outsmart (or team up with) their auditors to defraud the public, but the vast majority follow GAAP and succeed or fail on the merit of their business.

It's OpEx either way, right? Ideally the firm would be able to point at x, y, and z innovative and profitable new services, and say that's why we spend so much on R&D. It's not clear to me that Twitter can do that. So, an investor would be justified in suspecting that not all R&D expenditures are valid.

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