A recent blog post from classmate Gavin McQueenie discussed the intricacies of Facebook’s new advertising strategy, and how it was sure to boost revenue. For me, this prompted an interesting question, and an even more interesting answer. If social media websites are, allegedly, generating ridiculous amounts of revenue, they must also be generating ridiculous amounts of profit, no? Apparently, as is the case with other social media, and Facebook competitor, Twitter, this is not necessarily so. Twitter’s stock price which, despite a steep drop in May of this year, continues to climb and is sitting at nearly double what it was when Twitter went public in November of last year. Despite this, and despite the fact that there is a growing Twitter user-base, and despite the fact that there is a growing advertising platform on the site (all critical elements as outlined in Gavin’s post): TWITTER IS NOT MAKING ANY MONEY.
Believe it or not, based on GAAP analysis of Twitter’s numbers, Twitter is still in the red. In fact, it is estimated that Twitter is losing $0.98 per share this year, and will continue to lose $0.87 per share in 2015, despite earnings reports from the company that suggest their revenue is growing nearly exponentially. Although it is absolutely likely that Twitter will be profitable within the next number of years, there is still undying, devotional faith in the prospects of the company under it’s current situation (one without any actual money made).
In my opinion, the fact that Twitter isn’t profitable yet shouldn’t be a deciding factor for potential investors. However, it is essential to note that it is the case, and evaluate the applicable risk. Twitter may be a thriving and expanding company, but it just isn’t making any money yet, and investors need to be aware of that.
Sources:
Additional Information: Time Magazine Article
