Thursday, October 13, 2016

Measuring how bad Twitter is

My last blog post (exposing Twitter's excessive costs) prompted horror story emails on Twitter.

But the best thing sent to me was a financial history of Facebook. The first copy came from Twitter.

Here are the numbers.

Year Ended December 31,
2014
2013
2012
2011
2010
(in millions, except per share data)
Consolidated Statements of Income Data:
Revenue
$
12,466

$
7,872

$
5,089

$
3,711

$
1,974

Total costs and expenses(1)
7,472

5,068

4,551

1,955

942

Income from operations
4,994

2,804

538

1,756

1,032

Income before provision for income taxes
4,910

2,754

494

1,695

1,008

Net income
2,940

1,500

53

1,000

606

Net income attributable to Class A and Class B common stockholders
2,925

1,491

32

668

372

Earnings per share attributable to Class A and Class B common stockholders (2):
Basic
$
1.12

$
0.62

$
0.02

$
0.52

$
0.34

Diluted
$
1.10

$
0.60

$
0.01

$
0.46

$
0.28

(1)
Total costs and expenses include $1.84 billion$906 million$1.57 billion, $217 million, and $20 million of share-based compensation for the years ended December 31, 2014201320122011, and 2010, respectively.
(2)
See Note 3 of the notes to our consolidated financial statements for a description of our computation of basic and diluted earnings per share attributable to Class A and Class B common stockholders. 


When Facebook had $1.974 billion of revenue it had $1.008 billion of income before taxes.

Twitter is kind of different.

Year Ended December 31,



2015


2014


2013


2012


2011



(In thousands, except per share data)

Consolidated Statement of Operations Data:




















Revenue

$
2,218,032


$
1,403,002


$
664,890


$
316,933


$
106,313

Costs and expenses(1)




















Cost of revenue


729,256



446,309



266,718



128,768



61,803

Research and development


806,648



691,543



593,992



119,004



80,176

Sales and marketing


871,491



614,110



316,216



86,551



25,988

General and administrative


260,673



189,906



123,795



59,693



65,757

Total costs and expenses


2,668,068



1,941,868



1,300,721



394,016



233,724

Loss from operations


(450,036
)


(538,866
)


(635,831
)


(77,083
)


(127,411
)
Interest expense


(98,178
)


(35,918
)


(7,576
)


(3,255
)


(1,271
)
Other income (expense), net


14,909



(3,567
)


(3,739
)


1,168



(1,064
)
Loss before income taxes


(533,305
)


(578,351
)


(647,146
)


(79,170
)


(129,746
)
Provision (benefit) for income taxes


(12,274
)


(531
)


(1,823
)


229



(1,444
)
Net loss

$
(521,031
)

$
(577,820
)

$
(645,323
)

$
(79,399
)

$
(128,302
)





When Twitter had $450 million of operating losses and $533 million of losses before tax.

There was about $1.5 in difference in costs.

Facebook does more, had more growth runway and had much lower costs.

I received a lot of anecdotes and wild parties and profligate spending, and the plural of anecdote is data - but few things are as convincing as the raw numbers.

The conclusion is inescapable. Jack Dorsey - the Twitter CEO - should be fired.

This should happen regardless of whether Twitter is bought or not. He simply does not deserve the job.



John

PS. Twitter staff - I am not exaggerating. Look at the young man on your left and the young woman on your right. Only one of you three will keep your job.

Don't worry. It should be worse in the C-Suite.

Prepare resumes.

14 comments:

Anonymous said...

What happened to the previous post that you referred to?

Anonymous said...

you cannot compare facebook and twitter, because their products are not compareable. that would be like comparing Samsung and Volkswagen.

Anonymous said...

I heard Jack Dorsey and Marissa Mayer are related :P

Anonymous said...

http://brontecapital.blogspot.ch/2016/10/some-comment-on-twitter-buyout-rumours.html

Dave Bowker said...

Hey John,

Nice article. I would say to hammer the point home and make it easy for comparison between the two graphics, that the numbers on both graphics should be expressed in the same way. Eg, both millions, or both thousands

Nice article otherwise. I can't see how Twitter has any longevity myself.

D

tekewin said...

Hilarious! I'll been trolling twitter since the IPO (http://dollardeathspiral.blogspot.com/2013/11/frittering-with-twitter-v1.html) and I've done 10 posts tracking how much money they lose. They have mastered the art of selling toilet paper stock to investors in order to throw outrageous parties and pay heavenly bonuses. I don't know why some people treat them like an indispensable service, it's nothing but a cash burning machine. I guess there is some value to Politicos since they are now censoring and shadow banning people they don't like.

Henry said...

Will you be sending a letter to the board John?

https://investor.twitterinc.com/directors.cfm

KYLER said...

Interesting article. Have you thought about looking at it from the revenue side? Perhaps the problem is that it cost some certain amount to maintain a website and the relevant ad infrastructure and that Twitter just doesn't get enough money per ad to cover that cost.

A decent analogy might be when Buffett bought Buffalo Evening News. At first when they were competing with the other paper (I forget the name) their ad rates were fairly low and they were unprofitable. You could have looked at that and concluded that management was poor and costs were way out of control, but the problem was that running a newspaper cost what it cost and that the ad rates were just too low. Once they started circulating the Sunday edition and their competitor folded, they increased their ad rates and became immensely profitable over night.

I've talked with a couple of people that run ad buying accounts, and they tell me that even in an environment with diminishing returns to their bidding that they spend almost all of their money on Google and exactly $0 on Twitter. The click throughs and conversions just aren't good enough to make a very cheap ad profitable. So perhaps it's a problem inherent in their platform where ads just aren't worth that much, so they can't charge enough to cover costs. The financials would look pretty analogous to a situation where costs were out of control, but the problems would be very different.

Nick de Peyster said...

If they cut the costs by the amount you indicate, will revenue suffer? Wasteful spending or bad business model?

Nick de Peyster
http://undervaluedstocks.info

Rahul Deodhar said...

Nice articles on Twitter.

It doesnt have a strong business model. Probably that is the reason they are stuck with Jack Dorsey. He doesnt even work at Twitter full time.


They sell the data dump of all the tweets. It currently contributes $200m but that is supposed to be bread and butter strategy. Customers i.e. Corporates need to mine that data for trends and other consumer behaviour. I guess they also sell analytics tool for that. Most of the R&D should be going there - not to the Twitter website. Technically the vine and periscope should have same architecture so cant say that R&D is required for this.

Overall cost seem to be too high. SGA seems to be too high. I doubt the cost of web-servers and the hardware to run this should be $800m. It includes Traffic acquisition costs (TAC) but also amortized Intellectual Property and capitalised labour cost.

As per their report
"TAC consists of costs we incur with third parties in connection with the sale to advertisers of our advertising products that we place on third-party publishers’ websites, applications or other offerings collectively resulting from acquisitions, and from our organically-built advertising network, Twitter Audience Platform." Now Sales and marketing is entirely salaries and it amounts to $800m. Add to that their is too much money is being wasted on "talent" when it is not contributing.
This sounds weird to me - the costs are too out of line.


All the items (Cost of rev, R&D, sales and marketing etc) includes salaries and stock option pay within each of them. Possibly the salary components are too high and rest of spend is actually low.

May be before Carl Ichan, it needs you to look at the accounts.

Anonymous said...

This is a great opportunity for Ackman as activist investor. You two could even meet and compare notes. :-P

Anonymous said...

8% cut is not enough! More "talent" needs to be culled!

Richard Walker said...

Not as sophisticated as some commenters, but doesn't Dorsey get lift from Square? I agree with your analysis re: the raw numbers on Twitter, but what other rationale than the numbers from square would justify Disney's apparent admiration for Sir Jack? rww

longshort said...

John,

Ackman is sitting on a fantastic new product - The Pershing Square 2X Inverse ETF!!

I'd almost respect him if he actually launched it.

Cheers

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