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Re: TWTR

#151

Post by slapshot »

corford wrote: post #82

Can someone with more clue please tell me that the following cynical thought I keep having is wrong and laughably misinformed (and then explain why)? Twitter's investors (who have plowed hundreds of millions in to a loss making company) decide to sell some of their stock at $26/share (after consulting with banks to arrive at this price). This will make right the losses they've experienced so far and pass the problem…

The banks sold at $26 to their institutional clients ("building the book"). The banks didn't hold the stock at $26 themselves.

Re: TWTR

#152

Post by grmarcil »

colinbartlett wrote: post #80
MichaelApproved wrote: post #57

Earlier quoted context omitted.

Please don't take this as snark but I wouldn't recommend shorting anything if you are so inexperienced that you don't have a trading account or don't know which one to use. Shorting stocks is extremely risky and should only be done by traders with lots of experience. If you really want to bank on Twitter going south, you can try buying puts when they're available. If you're not sure what puts are, leave this whole id…

To add to this, just remember one simple fact: When you are a long a stock, the most you can lose is the amount you paid. When you are short, you can lose unlimited money.

@giarc: Shorting consists of borrowing as asset from someone to sell at the current market price and hoping it goes down in value, so you can buy it back for less that you sold it and then return the asset to its owner. In this scenario, you take the difference in price, less the premium you paid the owner for the right to borrow. To give an example, say stock A is trading at $100, but you think it is going to fall. Say you find someone who is willing to let you borrow a share of stock A for a week for the premium of $1. You agree, and then immediately sell this share back to the market for $100. You now have $99. If the stock falls, as you hope it does, say to $90, you spend $90 to repurchase the share and return it. You now earned $9 on a short.

Consider the opposite scenario: you short, but the price goes up. Again, borrowing a share of stock A for $1, trading at $100. You sell that share to the market and wait for the price to fall, so you can buy and return. But, suddenly the market learns that company A is insanely profitable in a previously unknown way, and the price of the stock skyrockets. At the end of the borrowing term, you are obligated to return a share of stock A to the person you borrowed from. How much will you have to pay to get it back? This is theoretically unlimited, depending on how high the market goes. If the market goes to $200, you have lost $101 on the short. If the market goes to $200,100 (and does not fall below this before the end of the borrowing term), you have lost $200,001 on the short.

Now imagine you have borrowed a LOT of shares on high leverage (value of what you borrow exceeds what you actually have on hand to pay it back) and you can see how shorting and being wrong can wipe you out.

Good point from svachalek[https://news.ycombinator.com/item?id=6690938] below: if the borrowed stock rises high enough, eventually the lender is going to margin call you..

http://www.investopedia.com/ask/answers/05/shortmarginrequir...

Re: TWTR

#153

Post by clarky07 »

corford wrote: post #143
nonchalance wrote: post #113

Earlier quoted context omitted.

The simple answer is that a share price is the present price to pay for the future cash flows of the company. Just because they aren't making money now doesn't mean that will always be the case. If twitter starts making billions of dollars soon, and starts paying that out to investors, then everyone makes money. They "eventually foot the bill" if twitter doesn't make money. Your cynicism reflects the fact that many c…

I find it hard to accept that a rational person thinks twitter will ever have the profit earning capability of Google. It just seems nuts to me to justify twitter's future earnings potential on a black swan event. Speculation on the other hand I can sort of understand and accept (although it's kind of sad that the speculation is driven entirely by hype rather than any kind of solid metrics).

It doesn't have to have the earning potential of Google to be successful. It's valuation is 1/10th of Google's.

Re: TWTR

#154

Post by dctoedt »

clarky07 wrote: post #108
corford wrote: post #82

Can someone with more clue please tell me that the following cynical thought I keep having is wrong and laughably misinformed (and then explain why)? Twitter's investors (who have plowed hundreds of millions in to a loss making company) decide to sell some of their stock at $26/share (after consulting with banks to arrive at this price). This will make right the losses they've experienced so far and pass the problem…

Sometimes it is just the public taking the fall. In this case, the loss making company has been growing revenues 100% a year so there is a chance joe public will end up doing ok. Even with the disaster that was the Facebook IPO, if you held for a little over a year you'd be up nicely. Also joe public isn't really joe public. Joe public is hedge funds and pension funds controlled by professionals. Your 401k or pension…

> Even with the disaster that was the Facebook IPO, if you held for a little over a year you'd be up nicely.

It could be argued that the Facebook IPO pricing was absolutely brilliant, in that Facebook and its selling shareholders received (what in retrospect was) top dollar under the then-extant market conditions, instead of in effect giving away hundreds of millions of dollars to the fortunate few who were able to purchase IPO shares.

Re: TWTR

#155

Post by bcoates »

twistedpair wrote: post #88
the_watcher wrote: post #36

I'm not an expert in the stock market, and the only stock I own is Facebook (which I bought a long time ago), but I am confused as to why Facebook is dropping today while there is so much enthusiasm for Twitter. Buying Twitter is basically betting on mobile advertising, which Facebook is the clear leader of. Is it possibly related to people with Facebook stock selling some to get in on Twitter? Are they entirely unre…

A typical P/E ratio is around 13. Take Apple, smack on 13. If it is too high, you're spending too much. No official numbers for Twitter's profits, all guesses, but a suggested $116M profit this year gives a current P/E of 207. That means it would take 207 years, ignoring inflation (which would make it much worse) for the company to actually pay its investors/owners back the price of the company. This is why people ar…

The P/E doesn't mean it's overvalued, it means it's priced assuming substantial growth in earnings. That doesn't make either the forward-looking market price or the backwards-looking profit numbers wrong.

If that growth is unlikely to happen, then it's overvalued. If Twitter becomes quadruple-Facebook and is earning $2.5 billion/year in a few years, it's very undervalued.

Re: TWTR

#156

Post by seiji »

nonchalance wrote: post #113
corford wrote: post #82

Can someone with more clue please tell me that the following cynical thought I keep having is wrong and laughably misinformed (and then explain why)? Twitter's investors (who have plowed hundreds of millions in to a loss making company) decide to sell some of their stock at $26/share (after consulting with banks to arrive at this price). This will make right the losses they've experienced so far and pass the problem…

The simple answer is that a share price is the present price to pay for the future cash flows of the company. Just because they aren't making money now doesn't mean that will always be the case. If twitter starts making billions of dollars soon, and starts paying that out to investors, then everyone makes money. They "eventually foot the bill" if twitter doesn't make money. Your cynicism reflects the fact that many c…

and starts paying that out to investors

That part doesn't actually happen anymore these days rendering most of these new tech stocks very complex insider wealth generating schemes.

Re: TWTR

#157

Post by joezydeco »

davidw wrote: post #48
joezydeco wrote: post #45

Earlier quoted context omitted.

I believe going public poisons any company. CEOs change their vision from long-term to insanely short-term. Gotta make those quarterly numbers or they're screwed. There have been a few exceptions to this, Apple being the most famous one. Facebook was on the same track but the SEC rules about share ownership forced their hand.

Amazon has pretty weird numbers, and is public.

I think Amazon is another outlier, as we've already discussed:

https://news.ycombinator.com/item?id=6591112

Notable pull quote: "It's important to note that if any other company spent until their EPS was negative, investors would /flip/. Amazon is playing with razor thin margins while trying to scale up a platform to end all platforms that we might someday use for everything without thinking about it."

So again, like Apple and Facebook, everyone knows the CEO is playing the long game and doesn't give a crap what the stock price is.

Re: TWTR

#158

Post by nine_k »

clarky07 wrote: post #114
nine_k wrote: post #102

Earlier quoted context omitted.

Well... I can't see a fault in your logic. Maybe you remember the dot-com boom in 1999? It looked somehow similar.

Not really. not only did those companies not have profits, they also didn't have any revenues or users. Twitter has > 200 million users, and they are growing revenue 100% a year. Dot-com boom was a whole different animal.

Let's calculate.

Twitter revenue was $391M for last 4 quarters [1]. Twitter market cap is currently $24670M, or about 63 times the revenue. If Twitter's revenue grows 100% each year (that is, twice each year), it will take 5 years for them to catch their current market cap with revenue: 1 + 2 + 4 + ... + 32 = 63.

But what investors are interested in is not revenue, it's profit. Let's imagine that Twitter discovers a magnificent monetization strategy that gives it 25% margin, like the one Apple enjoys. It would then pay out its market cap in 2 more years (4x growth).

This assumes that Twitter will always enjoy unfettered 2x revenue growth and the same high margin each year, while its valuation stands still, as does the dollar inflation. All these assumptions look a bit unrealistic to me, alas.

[1] http://www.businessinsider.com/twitter-revenues-2013-10

Re: TWTR

#159

Post by nonchalance »

tedunangst wrote: post #134
nonchalance wrote: post #113

Earlier quoted context omitted.

The simple answer is that a share price is the present price to pay for the future cash flows of the company. Just because they aren't making money now doesn't mean that will always be the case. If twitter starts making billions of dollars soon, and starts paying that out to investors, then everyone makes money. They "eventually foot the bill" if twitter doesn't make money. Your cynicism reflects the fact that many c…

Note that GOOG hasn't actually paid out any of its cash flow to investors.

Until recently, neither has AAPL. Doesn't mean the cash disappeared.

GOOG has 56.52B in cash and short-term investments (as of end of september). It's on GOOG's books but could easily be paid out (either directly or in the form of a share buyback)

Re: TWTR

#160

Post by pa5tabear »

the_watcher wrote: post #36

I'm not an expert in the stock market, and the only stock I own is Facebook (which I bought a long time ago), but I am confused as to why Facebook is dropping today while there is so much enthusiasm for Twitter. Buying Twitter is basically betting on mobile advertising, which Facebook is the clear leader of. Is it possibly related to people with Facebook stock selling some to get in on Twitter? Are they entirely unre…

Shouldn't we expect that success for one means loss for the other? Their services have significant overlap, and the social/mobile advertising market is finite.
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