There's only so much fat you can trim. Even if you managed to automate everything, fired everyone and just let Jack run it on his own, you're looking at a max of $1.5b profit/year. With no prospect for growth that $12B market cap is going to collapse very rapidly.

Right now they are trying to find other niches to fill so they can continue to grow, they are just not doing it very successfully.

> $1.5b profit/year

If they actually got to $1.5b annual earnings, they could definitely justify a $12b cap. A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry.

I'm not enthusiastic about Twitter and certainly wouldn't buy the stock, but the company also definitely isn't "worthless." There's certainly a path to profitability.

> A P/E of 8 would be ridiculously low for the technology industry—heck, for any industry.

In this scenario they have fired everyone and given up trying to grow. A P/E of 8 would be way overvalued.

You would only have to pay out 360 million a year to shareholders on a market cap of 12B to get a 3% dividend yield. It may not be sexy, especially in Silicon Valley, but Twitter could be a perfectly viable company.

But that's the problem they have - the market is/was bought in on the basis that this is a $40bn company (or more), the price reflects an massive upside belief, but the reality is $12b is about right.

So - sack a lot of people, cut costs, hold cash in the business and disappoint investors... Will the investors wear that though?

> A P/E of 8 would be way overvalued.

I disagree. For one thing, a P/E of 8 is standard for industries which most think are either declining or entirely stable. Benjamin Graham used 8.5 as a "no-growth" P/E so it's hardly insane. [1]https://en.wikipedia.org/wiki/Benjamin_Graham_formula

Moreover, even without feature expansion, I do think Twitter will see growth, though that growth will be minimal. At the very least they stand to benefit from the ever-increasing number of people on the internet.

A P/E of 8, in today's interest rate environment, means the company is actually failing and you're buying a decreasing future stream of revenue. Out of the S&P 500, there are four companies with P/E below 8 (Delta, Noble Corp (oil rigs), Yahoo, and Valero (oil again)).

Keep in mind that a lot of their costs are rapidly declining as the stock price goes down. This is the piece of a GAAP earnings statement that doesn't make a lot of sense to me. If the market loves what they're doing, and the stock goes up, then what they were paying people suddenly becomes unreasonable, and they get hammered for not controlling costs? I just don't get it.

Anyway, I sold all the shares I could at $51, and then sold everything else at $31, so I clearly didn't feel like the price was worth that, but $12B for the company seems a little low to me. Given current news is likely to be taken as a reason to sell, it wouldn't surprise me at all to see the company get bought. Which I guess could push the stock up a little bit, like it did last week, but it would take months of that to get people's compensation back to where it was with RSUs that were handed out a year ago.

Investors compare earnings quality across all sectors. Very very few companies trade at 8x revenue. Tech companies typically get a premium because they usually are quasi monopolies (See MSFT at 4x EV/Rev) and have solid growth rates. If you're not adding users, it means your growth is in question; how do you then justify an 8x multiple?

For reference most run of the mill companies trade somewhere around 1x revenue.

Why would their costs go down rapidly; stock based comp? Typically stock based comp has a strike price lower than the current share price. So they save but maybe not as much as the stock price collapse might suggest. Also, they'd still be unprofitable. A lot of professional investors feel they should cut costs, focus on periscope, and start making money off the new organisations that make money off of having access to information now. Things like charging the times and the journal for a live feed from ground action in Syria.

Yes, stock-based comp (primarily in the form of RSUs, not ISOs) are a large part of their overall costs.

Professional investors should stick to investing, product management is clearly not their strong suit based on this laundry list of proposals. :)

No. There are basically 5 ways make more money as a company. Professional investors usually have a better handle on these than the companies themselves.

Time and time again, companies come up with supply driven theses that give birth to products that fail. Demand driven products succeed. Knowing when to engage in M&A, sell assets, cut costs, expand to new markets and engage in corporate actions requires judgement that few companies have. It's not always about iterating on the product you already have.

Facebook understands this which is why they have made several key acquisitions. They're looking to be the home of the best innovations in social media; whether it comes from internal sources or external teams.

In Twitter's case, they have hit the limit of mind share in most markets. Everyone knows about it; few on the margin have incentives to sign up. Periscope has potential if data costs come down.

Being able to enumerate a list of classes can be helpful for categorizing a set of actions into a framework, but it doesn't give you much insight into whether or not a particular action is likely to produce the effect you're looking for. In the specific case of Twitter, I think stopping product development on Twitter the product would be a losing strategy. Keep in mind Periscope has at least in part been successful because it can piggy-back on the Twitter network. That network is not a static asset, it must be invested in to continue to hold value.

Your assertions are based on? Intuition? Mine are backed by data from market studies. Twitter is a known quantity and those who haven't signed up don't because they don't have a need to. Social networks are valuable because of the type and quantity of people there. You can do many things to monetize that. Not much you can do when that number doesn't grow. Notice the stock has fallen despite revenue growth being spectacular.

This is why people in industry don't always make it as CEOs. Knowing which game to play is key. Thinking like an investor is key too. Don't take it from me; take it from Buffett.

As an investor, I've made north of $5M on Twitter stock. At this point I hold 0 -- because I believe MAUs are dead in the water. I believe they'll be acquired and become a footnote in history.