Loss of almost $80 million on $316 million in revenue, and they're offering $1b... seems like they're asking for a lot when they have very little.
As long as the Fed is easing, fundamentals don't matter. The mispricing in equities is particularly pronounced in prominent technology companies, but there is clear excess throughout the market.
The name of the game is momentum. This game will end, and badly, but questioning the market and fighting the Fed has not been the path to profit so keep in mind that, right now, Twitter's bottom line is practically irrelevant.
* 75% of CRM's float is sold short, market clearly agrees with you * AMZN has big FCF numbers, 2012 being an anomaly because of the big fixed capex expenditures. They grow the business without regard to engineering their GAAP earnings, which is admirable, and means the EV/FCF is probably a big, though somewhat reasonable 25-50. * FB analysis requires a DCF because they're growing earnings so fast. They're only 40 x estimated 2014 earnings * TSLA is not the same business model as F or GM, though they all nominally sell cars. Look at the leverage around licensing revenue that ARMH or QCOM showed.
I haven't read Twitter's S-1 and can't comment on it (50 x revenue makes it feel closer to CRM than any of the others), but I generally agree with your opinion that equities are near a peak because it is literally impossible for fixed income to be less attractive as an alternative and the Fed is clearly letting us know it's closer to the end of QE than the beginning. (disclaimer: nobody should make investment decisions based on my advice, I'm not a professional and you could lose all your money if you do, etc)
EDIT: after perusing the S-1 the revenue growth rate is incredible, so it may end up more like FB (which has only surpassed it's ipo price in the last month or so...)
EDIT 2: Yahoo!'s short data was laughably wrong, CRM's percent of float sold short is 10%
Well, one could also say that the growth rate of their cost base is incredible too.
> I generally agree with your opinion that equities are near a peak because it is literally impossible for fixed income to be less attractive as an alternative and the Fed is clearly letting us know it's closer to the end of QE than the beginning
Just to be clear: I didn't state any opinion as to whether we're close to a peak or not, and based on what we've seen in the past month, I wouldn't use the word "clearly" in any sentence referencing the Fed's plans to end QE. The Fed is between a rock and a hard place, and while I think certain scenarios are more likely than others, I'll just say this: the only thing that would surprise me is if there are no more surprises.
But I'd be curious at what price you're be willing to pay for Twitter shares based on the filing.
Other than that, QE is quantitative easing; EV/FCF is enterprise value divided by free cash flow, which can be a useful ratio sometimes (company has a lot of cash/equivalents or lots of non-cash charges lowering earnings); and DCF is discounted cash flow, which the sibling comment explains well.
The importance of free cash flow lies in how capital investment (buying buildings, factories, or other companies, among other things) is treated.
When a company invests money, it doesn't count against the company's profit. It is just treated as one asset turning into another asset.
/BUT/, if a company is essentially /required/ to invest money in new capital to keep the business going (think capital intensive businesses like oil exploration), as an owner you have to budget that you'll need cash to invest in new things, reducing the amount that actually comes to you.
That hit doesn't show up in profit or revenue, but it does show up in free cash flow.
edit: I am addressing the general question, not ipo valuations.
What people actually do is say: "oh, crap...I can't make money in fixed-income securities. I guess I'll dump my retirement in stocks instead." This flood of money eventually makes its way to the riskiest stocks and props up high valuations.
Citation needed.
The only people calling for a crash when rates return from "historically low" to just plain old "low" are those that depend on these low rates.
It never ends well when you pile in at historical minima/maxima.
http://krugman.blogs.nytimes.com/2013/09/26/trade-and-secula...
He first suggests that we have possibly become dependent on unsustainable bubbles:
"Leaving aside the large surplus just after World War II, we went from persistent small surpluses before 1980 to persistent large deficits after 1980. This meant that we needed more domestic demand, other things equal, to achieve full employment — and arguably that we needed a series of bubbles and rising leverage, which are no longer forthcoming."
then he suggests a possible way out:
"And you might therefore argue that we can avoid secular stagnation by letting low interest rates lead to a debased dollar (hi, Congressman Ryan!), more competitive U.S. manufacturing, and balanced trade."
but then he casts doubt on the possibility of there being any way out:
"Or maybe not, because who exactly is supposed to be on the receiving end of our improved balance?"
As he has suggested in a series of recent blog posts, we might be facing a very long era of stagnation.
Can you point to a metric, besides the obviously flawed Cape-Shiller, that shows the stock market is anywhere near a point where fundamentals "don't matter"?
>This game will end, and badly
Will it? I think it's already ended well, preventing us from going into a deep depression.
Top line revenue is not looking quite as impressive, but 2012 is shown at $317 million, where as H1 of 2013 is shown at $254 million. If you assume same revenue levels for H2 (no idea if that's a valid assumption), you are looking at $508 million for 2013 or a 60% growth in revenues.
Add to this the sentiment comments made by others about how mainstream twitter is, and you definitely have decent justifications for high-ish stock price.
When they do, I believe they will have a lot more income.
They're bleeding money.
If they don't IPO now, how much longer could they last for?
1) Tweets disappear quickly from a user's timeline 2) Most people have few active followers
1 and 2 work against each other to form a negative feedback loop. The result is the vast majority of users use it passively to read celebrity tweets, nothing more.
Twitter must know this as their growth is already peaking and they're not making much money. Expect to see more drastic measures to try and turn what they already have into something profitable. They've peaked.
How many are spam?
How many are shady i.e. pay folk in the Philippines or Pakistan to send out tweets all day, to boost the numbers?
That's only 5,700 tweets a second.
An average IRC network for example does more than that.
Many users are following so many accounts that they can only read only a small subset of their timeline. I wonder if Twitter's apps and services also have to evolve substantially like Facebook's did to include more elaborate filtering and ranking options.
They're also on track to almost double their from 2012 to 2013. Why don't people ever look at the costs? There's a reason why they are on track to lose over $100 million this year.
What seems odd to me is that they're filing for IPO right now. Do they honestly expect public markets to buy their "but it's becoming ubiquitous" story? 2000 wasn't that long ago.
FB/Google/LinkedIn didn't have to go public but they had to due to SEC regulations and/or their existing investors.