Put another way, they used to be hosting a huge party and just had to work out how to turn that into cash. Now people are starting to leave the party, making cash less of a concern at that point.
Look how much people will spend on Android apps when they're a dollar or three. Make things really cheap, and people will buy them: they'll do a lot of impulse purchases when things are cheap enough.
If news articles only showed you part of the article, and then demanded $0.02 to read the rest, I could see a lot of people paying that. Considering how little they get paid for ad impressions (fractions of a cent), direct payments like that would be more profitable, and readers wouldn't care that much about spending pocket change on it.
But there's no way to make a functioning micropayment system currently. It's not feasible to have credit-card payments for sub-$1 transactions because of the high per-transaction fees, and Visa/MC have a cartel going where you have to use them for any kind of credit/debit payments.
SV needs to figure out how to make easy, low-fee micropayments a reality, and then we'll see some change.
Unless one has balls enough to factor in debt in micropayments. You sign up users and make them agree to pay those .02 at a later time and when you're down five dollars the usets need to pay to continue. It's risky but with enough margin to cover the insolvents it could work
Allegedly a Facebook user is worth $128 (http://www.forbes.com/sites/georgeanders/2014/02/07/youre-wo...).
Paying $5 to acquire a micropayment customer sounds cheap.
Wow, I would say Twitter and Linkedin are vastly overvalued compared to Facebook.
I mean, linkedin has a legit monetisation strategy just as a socially connected CV platform for recruiters to find people - and charging recruiters for tools to use it effectively.
That seems far far stronger than what I know of twitter. Facebook - well what I really want to know is more detailed metrics like median time spent on it per user, interactions per user, etc etc. I'd be fascinated to know if the trends are downwards.
LinkedIn's strategy is, as you said, a socially-connected CV platform so that recruiters can find people and hook them up with jobs, and make a big commission in the process, so LinkedIn charges recruiters a hefty fee for access to people. Ad-blockers aren't going to have any effect here: the recruiters still have to pay to send messages to people. It seems like a much more sound business strategy, as long as professionals still need jobs and there's recruiters looking to place them in jobs. It might not have the mass appeal of the inanity of Facebook or Twitter (since only a fraction of the population is of the demographic that would find it worthwhile to use LinkedIn; someone working as a barista or a Walmart cashier would not), but it certainly isn't subject to the same fickleness that those two are. All it'll take is some other inane social media platform to rise up for people to share dumb videos on and for FB/Twitter to do something dumb to piss off people, and suddenly they could become the next MySpace. LinkedIn's position is much stronger, as long as they don't screw it up trying to achieve the popularity of those other two.
This logic says a company in beta valued at $1 mil is worth $100k / user for the 10 beta testers. Not at all.
Hey I'm not saying these are necessarily awesome ideas, but if your ship is showing signs of starting to sink, doing crazy things like adding features to your product may not be all that crazy.
Did you and I fall into different categories or something and somehow that led to you receiving invasive marketing where as all I ever see are a few promoted tweets? Pretty curious about this because you mention that your experience is happening to a large portion of the user base.
Only visit occasionally now.
As for what I had said in the parent comment, what I was trying to imply was that something has happened recently that has disengaged a significant (different than large portion, specifically meaning not insignificant) portion of its user base as evidenced by the deceleration in user growth. Apologies for any confusion. :)
What notifications were you seeing? I'm trying to think what I would receive that wasn't another user interacting with me and all I can recall is something along the lines of 'User1, User2, ..., all liked User3's Tweet' where User1 and User2 were people I followed. But it was very strange because every now and then I get those notifications for high profile accounts and other times it would be like two friends liked a third friends tweet. Those notifications were quite sporadic though and don't bother me in the least.
It probably depends on who you follow and how connected they are. I get these notifications sometimes multiple times a day.
Scaling up is difficult for such products...
It doesn't matter to consumers that a business needs to monetize...they don't care; they weren't even aware that it needed to...they are satisfied with the product they know, as is...
This is something we in the industry get wrong, so often...
Twitter allows me to follow writers and influencers like Malcolm Gladwell, William Gibson, Edward Snowden, Glenn Greenwald, to niche industry influencers ranging from Rails engineers to industrial designers to photographers in a way that is digestable and at times personal. To me, it's been edifying to read thoughts from them, discover work they've created as it happens, or find out about a book they recommend.
Twitter is literally what you make of it. Follow interesting people, you get interesting content.
I know that the next day, or the day after that, worst case scenario, anything immediately relevant to me, or my community, will appear in my local newspaper, or RSS feed...
I live locally, in the short run, globally in the long run...
That's what devalues Twitter to investors...it's just "entertainment...it can easily be given up, without any real consequences...there are other more refined sources for what it offers...
It's surprisingly hard to find people who consistently say interesting things in such a restricted space.
Overall, I've decided it was so hard that it just wasn't worth my time, so I no longer read Twitter at all.
Obviously, your mileage may vary.
* Never follow accounts with blue checkmarks.
* Take the words of very popular accounts (even if they have no checkmark) with a grain of salt.
* Use your account to converse or pontificate, not to advertise your personal brand.
* Avoid jokey one-upmanship. It is tedious.
* Avoid detailed explanation until prompted. Brevity makes for misunderstandings.
* Follow people you do not know personally.
* Follow artists.
* Follow journalists.
* Follow minorities.
The reason to use Twitter is to get perspectives that have no other outlet - no advertising, no backing, no organization behind them. These are voices that are so faint that they could be tuned out any other way, and they don't get covered in the paper the next day, because they're going outside of the narrative lines. That is why you do better avoiding the blue checkmarks and people who would strive for them.
If making money ever isn't the main goal of a business, that truly are screwed.
That said, I've long believed that Twitter would be one of the first to fail when the tech bubble pops. They don't have a product people are willing to pay for.
Which, IMO, is fine. I wish we lived in an environment where Twitter could say "we're making money, we're successful enough, invest if you like what you see", but Silicon Valley is frequently hockey stick growth or death.
I think HN comments would be a prime example that simpler-functionality-with-higher-quality-participants is a valued combination.
No, they don't.
> Any compounded growth is exponential
Not all growth is compounded in a way that fits an exponential curve. Sure, any single interval (two data point) growth will fit some exponential curve, but once you get a second interval, it may or may not fit (or be approximated by) any exponential curve.
Well, I think more precisely they want the growth to be at least exponential; they'd be happy with super-exponential growth (increasing, rather than constant, k over subsequent intervals.)
They also want a minimum value of k.
If you don't want to set up a full DCF, the Benjamin Graham formula gives a quick intrinsic value estimate:
V = E * (8.5 + 2g) * 1.1,
E is earnings (FCF, or a modified form like owner's earnings would work also), but here, g is the growth rate for the next 7-10 years.
This still wouldn't work for TWTR, since negative earnings always give you a negative value, so you would have to project out the next few years until twitter has positive earnings (or positive FCF), then you could use the Graham formula and discount it back to present value. But at that point you might as well just do a full DCF.
I have not read it, but if his "Little Book" is indeed a condensed version of his main book, then its a good start. I think he also gives out a PDF for free on his website.
I would advise against blindly applying DCFs, or at least making real investment decisions from blindly running one. When I first got started I looked for some grand "insert and crank" method of valuation, but now I am convinced there is no shortcut aside of thoroughly understanding a business and its financials.
Financial models, especially DCFs, are useful as a framework for comparing similar assets against each other -- whether it's two software companies or two oil refiners.
On the other hand, using DCFs as a tool to derive the "true" value of a company's equity is a mistake. Similarly, imputing truths about the drivers of a given company's DCF valuation -- e.g., g in the Gordon growth model -- based on the value of that company's equity in the financial markets is also a mistake.
The recent explosion (last 5 years or so) in private company valuations is more a function of a global thirst for yield than investor expectations that any given company will be producing free cash flow of a in year x or b in year z.
My point is that the drop in Twitter's stock price has nothing to do with DCFs and more broadly, that DCF models are useful (and used) primarily as a means of comparing similar companies rather than as a "true measure" of a company's value.
Investors also always think about the immediate obvious future. Twitter may have many monetization opportunities, but without implementing or demonstrating any, you have know way of knowing where they are going or if they'll succeed as an investor.
Average American spends 4h on TV every single day. Twitter has nothing on that.
Growth in users/usage/engagement in a social network almost always yields a better ROI than no/low/negative growth in users/usage/engagement.
Twitter does not necessarily have a monetization problem, people just want to invest their money where there is more potential.
e.x. A $1 increase on a $1 stock purchase yields a 100% increase, a $1 increase on a $100 stock price only yields a 1% increase. In this example, you should have purchased $100 worth of the $1 stock.
e.x. On the other hand, if have some $x less than $100, but you think the $100 stock is going to increase at a faster rate than the $1 stock, you should purchase x/100th of a share of the $100 stock.
[1] A stock's price is meaningful for two reasons. The sum of value of all shares defines the market capitalization for a company. Also, price can be used to exclude buyers in a socioeconomic way. This is rare, most companies will split the stock every so often to keep the price affordable. An example of an exclusionary stock is Berkshire A, which is currently priced around $180,000. Nonetheless, at the end of the day, as an investor, the only thing that matters is your expectation for the percent change in price.
Another way to think of it is, forget about speculating and expected price changes. Think about at what price you would be comfortable buying the whole company and taking it private and harvesting cash flows from it. At $1 for an XBN revenue company that's a no brainer. I'd earn a 1000% return in a year just by cutting some costs and making sure capital is allocated in a manner that generates a return.
What are Twitter's peer companies? Well Facebook is certainly one such company that is publicly traded and its metrics widely available. So Facebook's numbers, and in particular the numbers that Wall Street analysts decide are relevant, become the benchmark stats that Twitter is judged on, even if Twitter actually should not be put into the same basket as Facebook.
You can go from $1 / user to $1.40 / user or $1.60 / user, but you can't go to $3 / user or $10 / user without some fundamental shifts that'll lose you users.
You CAN go from 100 million users to 300 million to 1 billion.
My very controversial view is that Twitter will never achieve profitability (of the level that justifies their market cap). Like Facebook, Twitter is in a two-sided market. Unlike Facebook, it's unclear what the other side of that market is, or how it could be sufficiently monetised:
User --> Facebook <-- Advertiser
(Stalking) --> (Profit) <-- (Eyeballs)
(Socialising) --> (Profit) <-- (Targeting)
User --> Twitter <-- ?
(Free expression) --> (Profit?) <-- ?
(Public broadcast)--> (Profit?) <-- ?
- Because of the structured data they hold, it's far easier for them to target advertising at finely grained demographics. This is beneficial because it reduces or eliminates the 'user value subtraction' from advertising, and increases the value of placing an ad for advertisers (so Facebook can charge more for it). Twitter have far less scope to do this, as they can only make general inferences about their user based on sentiment and relationship-network analysis. Also, because the data is public, advertisers can analyse and target (via company/brand accounts) for free.
- Facebook enjoy increasing returns to scale. On the user side, if more people use facebook there are more people to stalk or socialise with. On the advertiser side, more users means more eyeballs, more targeting data and more advertising niches. For Twitter, users gain far less from increased scale (as user-base size is not related to 'free expression', and only weakly related to 'public broadcasting', given non-twitter users can read twitter walls). Even worse, because Twitter data is public, they can't charge advertisers for the (less structured) data they generate.
- Although an ill-defined concept, Facebook has increasing returns to scope. That is, as they acquire new types of data on their users, they can offer even better targeting and find more granular marketing niches. For example: imagine if Facebook acquired LinkedIn. It's fairly easy for them to link Facebook and LinkedIn users, as most use their real names on both. So now, in addition to knowing someone is a single 28 year old white guy who enjoys scotch, they now also know he earns a high income. This means that where they used to target him with generic scotch ads, they can now target high-end and expensive scotch ads at him. Twitter's users, on the other hand, mostly interact behind unlinkable pseudonyms.
As heretical as these sound, I think there are only three ways for Twitter to generate significant profits (and they all carry significant drawbacks):
- start charging for API calls above some threshold (i.e. charge for market research) - start charging commercial entities based on number of followers (or volume of tweets) - use adsense (better user data linkability)
tl;dr - Twitter creates significant value. But it's difficult for them to capture at least some of that value as profit (unlike Facebook).
That's less convenient for the narrative of hatred for Wall Street, of course, but it does seem within the bounds of reason.
Or to put it differently, why invest in a company that isn't growing? How do you make money if you pay $X and don't expect the company to go beyond $X?
Further, high valuation stocks are subject to much greater crashes while annual best deciles upside is spread across valuation deciles. Meaning High value stocks tend to be a poor bet.