OK so Twitter (NYSE:TWTR) will report today after the close. This will be the very last earning announcement before they go public. You can hear the feeding frenzy coming. Surely this IPO will fare better than that last when with Facebook (Nasdaq:FB) taking a huge dump for a whole year.
Here are a few ways that investors will screw themselves with exuberant enthusiasm.
- They will dismiss the lack of profitability and ignore that a stock is the present value of future earnings less the present value of near term losses.
- They will focus on the wide-screen big picture without clear proof of concept. When TV was in its golden period, Mad Men on Madison Ave knew how to manipulate viewers. Despite hordes of SEO experts no one is turning away business because he or she is so damn good.
- The earnings call will try to dampen investor expectations. The market is in a frenzied state as is. Investors in their excitement will ignore management.
- Management may lay out what needs to be done by way of capital expenditure to finish building this marvellous money machine. investors will probably ignore this also.
- Twitter will not explain how they co-operate with the US Intelligence community. Other countries may sanction Twitter in the future. Significant geo-political risk exists.
- Twitter will stick to basics when discussing revenue growth. We all know they will acquire other companies but they will refuse to discuss it now. Twitter will need booster shots of rapidly growing earnings.
- Facebook can stop its financial levitation act. Now that it’s north of $50 you can sell it to pay for Twitter. How much higher can Facebook go any way.
George Gutowski writes from a caveat emptor perspective. Follow him on Twitter @financialskepti