Usually, mentioning Twitter (NYSE:TWTR) and LinkedIn (NYSE:LNKD) in the same sentence is sure to invite disbelieving stares and head shakes. After all, LinkedIn is a cash cow with money coming out of its ears. Twitter, on the other hand, despite the outsized love and attention it gets from the media, both online and offline, is still in the red. Indeed, Twitter had a nasty fall in stock price by the end of 2014. Twitter stock lost around 36% of its value. This year, Twitter has recovered its loss. What gives? This is where we need to compare it to LinkedIn.
Compared to the very popular and profitable online resume and job hunting professional networking platform LinkedIn’s stock, Twitter’s stock is actually looking quite good. In fact, Twitter’s stock beat LinkedIn in terms of appreciation. The latter’s stock has so far appreciated by 7.9%. Compare that to Twitter’s whopping 36.9% appreciation to date. That’s some appreciation. Much of this is due to Twitter investors’ and boosters’ belief that the company is a growth stock. They define growth based on sales growth. If this were the only definition of a growth company, Twitter would come out smelling like roses. After all, the company’s revenue streams continue to grow and it is constantly working on putting as many ads on the available user interface on its platform.
However, there are other ways to define growth. Sales are great but so are profits and this is where Twitter falls flat. When its boosters compare Twitter’s revenue performance with that of Facebook and Google when they were at the same developmental stage as Twitter, one thing stands out: Facebook and Google were profitable. Twitter has been on a nice run lately. However, don’t expect its good luck to continue unless it starts registering a profit soon. Hype and buzz can only take a stock so far. Eventually, the bottom line has to be reckoned with.
