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Wall Street seems a gambling game, which doesn’t make any sense at all in some cases, but there is a reason behind every single decision that is taken there. The trust and the expectations that Wall Street gave to Twitter have made us think a lot in the past weeks and we have waited before writing something about it. Predictions happen when someone has the guts to risk everything, even the reputation, but without them we wouldn’t be able to think and focus on the problems that surround us every day.
In the past weeks, there have been people making huge predictions regarding Twitter. Analysts predicted that the stock would have reached at least $75 per share with a net increase of more than $30 a share compared to the IPO, within a year. The truth is that nothing is certain, especially when we are talking about a micro blogging platform who has never been cash flow positive since it was founded.
The main question before looking at the numbers is to understand how big Twitter can be in the next years. Everyone knows what Twitter is, but it doesn’t mean everyone is using Twitter. People tend to share with the people they care about through different social media such as Facebook, Whatsapp and even Snapchat. When you start using Twitter, you share with the world and not with who you want to.
Twitter is good for people who have got to say something to the world such as journalists, tv stars, vip and entrepreneurs and it’s also interesting for people who want to follow them; but is this paradigm worth billions? People tend to interact more with their friends, why would my 81 years old grand father start tweeting? Instead, he has got a Skype and Facebook account.
Further when we talk about monthly active users, 241M in the 2013 Q4, we don’t refer to people. How many spam accounts does Twitter have? How many accounts does a single entity have? Dozens. I personally manage more than six Twitter accounts, which means that the company doesn’t really know what to sell to me. On the other hand Facebook knows the websites I like, the things I do and what I am more likely to buy.
In the same way, we should start wondering how many accounts of those 241M are businesses or people. Every single business is on Twitter, so are we saying that 50% of those active accounts are businesses? If yes, growth becomes even more difficult, because the interactions decrease and ads don’t work anymore. Businesses, which are using sponsored tweets, aim to reach people and not other businesses.
Even though Twitter is basically doubling its revenues year by year, they are still cash flow negative and the IPO was the only way to raise enough cash to survive and hope to be cash flow positive in the next three years. They will definitely reach their aim, but making money is not what Twitter should aim at and even if you make money, it doesn’t mean you should be worth $30 billion.
People thought they could make as much money as they made in the Facebook’s IPO, but the situation is completely different. Twitter doesn’t offer the same things, services and quality that we can find on Facebook. Further a set of new apps in social media have already started threatening Facebook and if they threaten Facebook, they will definitely overwhelm something like Twitter.
It would be really interesting to see Twitter focusing on something completely different and Vine is what we are talking about. When you grow and expand, it doesn’t mean you have to do it with just a single product. Companies like Twitter and Facebook, in order to survive, must innovate and create more than one single product that becomes just an habit after years of using it.
Is Twitter overvalued? Yes, people think they will make a lot of money in the next years. We think, at this point, it’s more about gambling than investing in something that will be sustainable for the next fifty years.
