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Comment by Waterluvian | Hacker News Reader

What is the endgame for companies like Twitter and Facebook? It seems like the only behaviour for publicly traded tech companies is grow or die. So what happens when they hit some theoretical maximum? Is it not acceptable that they're making money? Is there no steady state? Not saying that Twitter is there. But theoretically what does that look like?

"Hey, so we basically maxed out our target market share. We're healthy, profitable, popular, but this is basically the limit. There aren't any more people in our demo left on the planet to capture."

"Nope. Go make more money. Sell more ad space. Or shift focus to a new product or something."

"But that will either degrade the quality of our product or take our eye off the ball and allow a competitor to eat our lunch."

"Too bad. I don't care how profitable you are, only that you're more profitable than last year."

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There are plenty of public companies that reach a steady state. What happens for those companies is their PE ratios shrink, they start paying out dividends and their expectation is to be a big lumbering giant whose valuation isn't expected to have dramatic swings based on outsized expected future earnings. What happened here is not "Wall Street" saying that Twitter must die, it's saying "Hey, your newly expected future earnings are no longer able to justify your prior valuation and therefore here's your new valuation based on all currently available information".

Okay so twitter has been in a "valued based on anticipated growth" state. And other companies can matriculate to a "valued based on reliable dividends" state? This I can understand. Thanks.

Yes. Bear in mind tech companies are terrible at paying dividends. Google has never paid one, Apple only really started after Jobs' death. No dividends means no reason to hold a stock unless you think the value will go up significantly (and ultimately the value is driven by an expectation that one day divis will be issued).

Facebook and Twitter are getting hammered because it's clear they're spending insane quantities of cash on attempting to "cleanse" their platforms of undesirables. Facebook alone announced they were going to hire tens of thousands more people to work on "security" (lol). That bloated spend reduces future dividend potential and causes their stock to be less valuable.

All this is new territory, mind you. This is why older traditional/value investors like Buffett don't dabble in tech. The PE ratios are through the roof and we don't know what it will mean once we start seeing these companies truly decline.

> What is the endgame for companies like Twitter and Facebook? ... Is it not acceptable that they're making money?

The difference between Twitter and Facebook is that Facebook can make money.

In case of Facebook, it would be like:

"Can you get more users?"

"Nope, we already have the whole planet. However, we can squeeze more money from them. The users already accept that their timeline is created by an arbitrary algorithm. So we can make them bid against each other for appearing in their friends' timelines. If you want your mom to see your photo from holidays, you can pay $1 to make sure it happens."

In case of Twitter, it would be like:

"We already have the whole planet. We can ruin people's careers, or drive them to suicide, more than any other web service."

"Great, but can you make some money? For the shareholders, you know."

"Uhm... if we started charging people for using our service, most of them would leave, so..."

"In that case, no more money from me."

> The difference between Twitter and Facebook is that Facebook can make money.

Twitter is profitable (last 2 quarters) and is earning something like $3B a year.

https://www.nasdaq.com/symbol/twtr/financials?query=income-s...

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