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Overall I am a conservative investor with a diversified portfolio. As a sideline I gamble on single positions for a short-term gain. I hunt for bargains especially in Tech as that is my home turf. I do this normally (but not always) for a day trade before escaping back to cash. My specialty is... More
  • Twitter Is No Facebook: A Little Thing Called Profitability 2 comments
    Jan 31, 2014 1:12 PM | about stocks: TWTR

    Again and again we see $FB,$TWTR, $LNKD rise and fall together as the marketplace currency of social media gains and loses favor. This is a misconception that will cause some people to lose money even though there is money to be made in this subsector. Let's focus on the first two companies and leave the more confusing subject of LinkedIn for another essay.

    The first key to being able to predict the 2014 outlook for these companies is to view them independently of the social media catchall. Let's look at profitability: Facebook is the leader in profitability. They have beaten Google, the 10,000 lb monster, in profitability of mobile advertising. We would like a lower P/E ratio. Right. The poor P/E ratio results from the tremendous amount of investment, mostly in software engineer salaries. Simple and easy-to-use are complicated and expensive qualities to engineer. That is why FB is more easily accepted by the older crowd, as well as tech-savvy youngies. Advertisers agree and that is why Facebook turns a profit.

    Contrast the profitability of TWTR, or lack of it. Twitter would like investors to think that it is following a logical progression to profitability similar to its predecessor, Facebook. Thus it is buying patents from IBM like was done by FB. But do we really believe that the rise to profitability is just a predetermined series of steps? No. FB rose to a type of profitability that is different from what TWTR needs to attain. Every business should have a FB presence. That includes lawyers, doctors, election campaigns, you name it, any sort of enterprise. FB is a collector of all these disparate entities that need a web presence. So even if the teens abandon FB, it will still have a profitable niche.

    TWTR can only be profitable if it stays "cool." Cool is the realm of a younger demographic. Yes, the Pope is on Twitter. But he doesn't just suddenly have an idea while sipping his cappuccino and grab his smartphone. It's done for him, probably even the wording of the tweets. Once the Pope, government leaders, ceo's are informed by their staff that nobody uses Twitter anymore, that will end their usage. So profitability relies on the continued fascination of the younger crowd. If something new comes along, Twitter will fade away. A holder of Twitter stock will not necessarily lose it all. The capability will be absorbed into another entity (NASDAQ:GOOG) and you will still have tweeting as you have today. But this outcome will happen only after a serious decline in the stock price due to it becoming apparent that TWTR never learned how to turn a profit. So far the only sign of viability has been a steady increase in revenue. When will TWTR profits start? It didn't take FB this long.

    Disclosure: I am long FB.

    Additional disclosure: I recently opened a FEB14 bear call spread on TWTR, currently down fourteen dollars. If it profits, will continue to roll it to the next month in 2014. All I have done with FB is hold it for unrealized gain of 46.88 percent to date, piece of cake.

    Stocks: TWTR
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  • jbzet
    , contributor
    Comments (14) | Send Message
     
    Shorting $TWTR as I don't believe they are making the kind of money $FB is making. Not even close. TWTR has never made any real money, even as a private company. The upcoming ER will show the true story. All they do is spend because they still have money from their IPO but the reality is that they don't really have a proper advertising platform, yet...
    1 Feb 2014, 02:03 PM Reply Like
  • 6269751
    , contributor
    Comments (1544) | Send Message
     
    Author’s reply » I lost money so far, $230 on a Feb14 bear call spread. I'm just playing around with test bets so far. The money question is WHEN. I am not a market pro, but I am something of a tech pro. The tension is that the prime users of Twitter skew to a younger demographic. That demographic does not have money to play the stock market. An older crowd is betting wealth on the viability of Twitter. But the idea that FB and TWTR are linked trend-wise is the fatal misapprehension of investors. That's the story line but we don't know when the big plot moment is coming.
    3 Feb 2014, 11:50 AM Reply Like
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