The math is simple. Twitter Inc. (NYSE: TWTR) has a market value of $17 billion now with its stock at $26. Shares traded at $74 in January of 2014. Twitter management has destroyed approximately $30 billion in market cap. Among Web 2.0 companies, this must be close to a record since the initial public offering of the company three years ago.
The reasons for the drop could be irreversible, which means the shares could drop much more without a buyout. And without any strong case for the company to make a profit off the advertising revenue bought in from subscribers, that case cannot be made. There was a 316 million base on the company’s last reported quarter, based on what Twitter calls average monthly users, which means they may not be engaged a great deal from day to day. In reality, regular users could be a small fraction of the Twitter number. No wonder the company loses money and is looking for a new chief executive.
It has been pointed out a number of times that a new CEO is not the answer to Twitter’s problem, because that problem may have no solution. If Twitter’s regular users number in the tens and not hundreds of millions, its chance to bring in much more than the $500 million it did in the most recent quarter is very limited. Twitter may be trapped at revenue under $3 billion a year. Certainly its forward-looking guidance supports this. The forecast is for $502 million in revenue. So, the actual run rate of Twitter’s revenue is closer to $2 billion. Any figure above that is generous. Twitter’s revenue growth, quarter over the same quarter last year, could go from the current rate of 60% to less than half of that.
A drop of that kind would make it nearly impossible for Twitter to make money. In the most recent quarter, it lost $136 million. Granted a portion of this figure is based on stock compensations. However, on a GAAP basis, that is not a consideration. So, GAAP losses should continue.
Over the course of the next year, if the shares fall in half again, Twitter can destroy another $8 billion.
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