Twitter isn’t profitable. And neither are these other huge public companies

November 8, 2013 Leave a comment

Twitter isn’t profitable. And neither are these other huge public companies

BY DAVID HOLMES 
ON NOVEMBER 6, 2013

In the weeks leading up to Twitter’s IPO, the biggest critique leveled at the company is its lack of profits. It’s not exactly a frivolous complaint. And today that grievance was aired even louder after news broke that Twitter was likely to price its IPO between $25 and $28 a share, leading to a market value of up to $16 billion. Crazy, right? How can a company be valued so high when it isn’t even, you know, turning a profit? Well, that all depends on how much you expect Twitter to grow in the coming years. Plenty of observers, like Business Insider’s Henry Blodget, think judging a company on current profitability alone is shortsighted, and that Twitter’s projected future growth makes it a bargain at $28 a share. Blodget compares Twitter to LinkedIn, another social network operating at a loss at the time of going public that’s been consistently profitable now for the past 10 quarters. If nothing else, Twitter’s lack of profitability hardly makes it unique among giant tech companies. In the graphic below, NYU’s Simran Khosla charts the net income of 12 big public companies over the past ten quarters. Some, like Apple, never posted a loss during this period. Others, like Pandora, have almost never been profitable during this time. That means that if Twitter does begin to turn a profit by 2015, as analyst reports compiled by Bloomberg predict, it will still be ahead of plenty of other hyped public companies:

flightless-birds-copy2Profitable2 copy

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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