Some Comment On The Twitter Buyout Rumours

Twitter is wildly addictive. This is good known too in that location are people who cheque twitter to a greater extent than obsessively than anyone checked email.

Twitter is also a chaotic Blue Planet total of trolls, useless information, porn-spam too videos of kittens.

It is also - equally anyone cares to notice - for sale.

The gossip - too I receive got no argue to doubtfulness this - is that in that location are on the Twitter board ii factions:

• The CEO Jack Dorsey who wants to run the companionship and
• The board who - sick of pointless losses too running out of coin - wants to sell it.

This leads to in all probability the most leaky sales procedure I tin e'er think - amongst almost daily rumours virtually who is interested too who is non interested. The electrical flow rumour manufacturing works life says all the "strategic buyers" are non interested.

In this weblog post though I merely run through the numbers too elbow grease to delineate what equally a regular user (but an outsider) should live done. But I volition cutting to the chase now. This companionship should live too in all probability volition live bought yesteryear an aggressive fiscal buyer. And Jack volition live fired. (And - I intend - the Blue Planet volition live a amend house for that.)

Just the numbers 

You tin unwrap fourth dimension serial quarterly P&Ls (standardised yesteryear Thomson Reuters) here. An annual serial is below.

Period End Date	31-Dec-2015	31-Dec-2014	31-Dec-2013
Revenue	2,218.0	1,403.0	664.9
Net Sales	2,218.0	1,403.0	664.9
Total Revenue	2,218.0	1,403.0	664.9
Cost of Revenue, Total	729.3	446.3	266.7
Cost of Revenue	729.3	446.3	266.7
Gross Profit	1,488.8	956.7	398.2
Selling/General/Admin. Expenses, Total	1,132.2	804.0	440.0
Selling/General/Administrative Expense	892.3	583.7	270.5
Labor & Related Expense	239.9	220.3	169.5
Research & Development	806.6	691.5	594.0
Total Operating Expense	2,668.1	1,941.9	1,300.7
Operating Income	(450.0)	(538.9)	(635.8)
Interest Expense, Net Non-Operating	(98.2)	--	--
Interest Expense - Non-Operating	(98.2)	--	--
Interest Income(Exp), Net Non-Operating	--	(34.0)	(6.9)
Interest Inc.(Exp.),Net-Non-Op., Total	(98.2)	(34.0)	(6.9)
Other, Net	14.9	(5.5)	(4.5)
Other Non-Operating Income (Expense)	14.9	(5.5)	(4.5)
Net Income Before Taxes	(533.3)	(578.4)	(647.1)

Here is what to notice. Revenue has gone upwards really nicely - from $664 i M one thousand to $2.2 billion too is nevertheless increasing. And costs receive got gone upwards commensurately. Losses look stubbornly stuck at one-half a billion per annum. That is existent coin - merely burnt - too burnt yesteryear a work concern that is already established.

In other words costs receive got gone upwards yesteryear $1.5 billion give or accept something. That is billion amongst a b.

Now if costs were rise that fast and the service were noticeably improving too engagemet growing then you lot could live tolerant. Making coin is far less of import inward a growing tech companionship than increasing your relevance too the moat that surrounds your business. (Amazon is the leading illustration of a companionship which increases the moat every day.) The short-hand for that thinking is that revenue follows relevance.

But - equally a pretty dedicated tweeter (with almost xx M followers) - I receive got noticed almost no changes inward twitter that improve my user experience. It is almost impossible to unwrap out what they pass that $1.5 billion extra per annum on. I get together in that location are some improvements inward the monetisation side but this is merely a website - too it does roughly what it did inward 2012 - too but spends good over a billion dollars to a greater extent than to practise the same thing. [From my perspective the marginal improvement is that I am seeing fewer failed-to-load pages... but that is it.]

Twitter has locomote yesteryear away a parody of bad Silicon Valley management - the form of management that existed inward the dot-com blast where quite literally burning shareholder funds was considered a score of innovation. 

The primary divergence betwixt this too (say) Pets.Com is that underneath is a work concern that should live salvageable - too should brand pot-loads of money. After all if they raised costs yesteryear $1.5 billion per annum without achieving jack-shit too thus costs should live able to live controlled. And if that is possible too thus Twitter equally an LBO works on the dorsum of an envelope at these prices.

Why a fiscal buyer non a "strategic buyer"

The word of the 24-hour interval is that almost all of the strategic buyers (other large tech companies) receive got pulled out of the bidding process. There is adept argue why that should live the case.

If you lot run Salesforce.com for instance your primary agenda should live on growing your work concern inward a disciplined fashion. They are nevertheless inward the phase of edifice relevance. And that requires friendly good directed management willing to permit staff receive got their fiddling well-directed flights of fancy (rewarding of class those fancies that grow the business). 

But Twitter is yesteryear that. Somewhere close one-half a billion dollars of costs necessitate to live taken out almost immediately. And that involves firing people too beingness a full general tough-bastard. It's inevitable anyway - because Jack Dorsey burning one-half a billion dollar per twelvemonth isn't a sustainable business. The cash eventually runs out. 

The work is if you lot mix this amongst a Salesforce.com or similar companionship it volition live genuinely difficult to accept costs out inward a disciplined fashion without upsetting the civilization of the domicile company. Instead this should live fixed (with extreme prejudice yesteryear a disinterested outsider) earlier it is sold in i lawsuit to a greater extent than to a strategic buyer.

Or - inward summary: the best bastards are from Wall Street. And this needs a Wall Street bastard. 

Carl Icahn - Twitter needs you. 

--

That said - in that location are things that necessitate to live done that are non beingness done nether the (seemingly incompetent too fashion obsessed) Jack Dorsey.

First troll detection has to live done much better.  There grade of incompetence inward troll-hunting beggars belief. For illustration I receive got stereotypically attractive xx twelvemonth olds inward bikinis who merely desire to practise wicked things to me (and I am non fifty-fifty Donald Trump). I block them all too study them - but somehow Twitter has non managed to halt filling my time-line amongst porn spam. Blocking this is the form of designing recognition that computers should practise - too if your spam-to-content ratio gets to high you lot eventually lose existent users.

Also in that location is a lot of semi-commercial (even scam) spam here. Have a expression at this twitter stream: https://twitter.com/doxitehydyla.

There are almost 10 M tweets - too they are all penny stock advertisement by too large for the same penny stock. I intend it is Russian but the location says Manchester. (Many scam advertisement schemes expression the same - too I practise non intend the penny stock promoters all alive inward Manchester.) The Tweets include a reference to some hot stock or controversial stock (Apple, Herbalife etc) too and thus links to a penny stock page. It is genuinely plainly spam. But it has been some for months.

It also has 800 followers too non a unmarried overlap amongst my followers. In other words almost all the other followers are spam bots also (because I look to receive got overlap inward followers amongst all serious fiscal tweeters). 

I could block 5 of these a 24-hour interval too in that location is nevertheless an endless supply. It makes searching for word virtually a stock almost pointless because the ratio of spam to existent word is non good. 

I suspect the management incompetence goes further. If they genuinely create the spam-bot work too thus the truth virtually the active users numbers volition out. It is weak (precisely for the argue above). But weak numbers hateful they are all going to necessitate to live fired. 

--

But lets play the numbers

Twitter revenue is nevertheless rise too is running virtually $2.5 billion per annum. It is a website that in i lawsuit ran extremely good on less than $250 i M one thousand inward costs. (No I am non joking.)

If you lot can't brand this receive got a twoscore per centum operating margin too thus - frankly you lot are inadequately brutal. Personally I intend 50 per centum is possible.

At this marketplace cap that works extremely good for a fiscal buyer. Its a no-brainer even.

So hold back it to live bought. By some Wall Street bastard armed amongst a lot of debt. 

And that bastard volition shipping away a lot of people. 

If I worked at Twitter I would live preparing my resume too providing a listing of genuinely quick things that tin live done to improve the user sense - amongst the code all mapped out. That largely involves getting rid of spam bots too the like. But unless it radically improves the user sense or monetisation too you lot tin convince the novel owners you lot tin implement too thus you lot are out. 

And the fashion-obsessed philosopher king. He is out also whether in that location is a buyer or not. That is necessary to preserve the company.

John 

PS. Long for the takeout which I come across equally inevitable.