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Technology Stocks : Twitter, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Glenn Petersen who wrote (360)	2/8/2014 1:47:34 PM
From: Lizzie Tudor	Respond to of 3408

Interesting article, but so biased it is hard to take seriously. This guy is basically rehashing his resentment of the last internet bubble. Relative to the rest of the market, though, online companies are still valued highly, and their prices have risen significantly. On February 6, 2009, the Nasdaq Internet index, which consists of eighty online companies, closed at 83.80. On Friday, five years later, it closed *at 400.34. That’s a rise of more than four hundred and seventy-five per cent.* This isn't inconsistent with the stock market as a whole. In fact, internet stocks aren't even the most trumped up sector in this bull. In feb 2009, Mastercard MA closed at $14.24. On friday it closed at $76.31 - 536% gain. DLR Dollar Tree was 11, it closed on friday at 59, similar. In feb 2009, IBB ishares biotech closed at $59.76. On friday, it closed at 246.33. Another 400% gain (and it isn't the best biotech index) In feb 2009, XHB S&B homebuilders ETF was $8.25. On friday it closed at $31.99. Another word of caution here, though. Capital IQ, the consultancy that provides cash-flow figures to Yahoo Finance, calculates them in a different way than the Internet companies themselves. Rather than reporting normal EBITDA figures, many of them release “adusted EBITDA” numbers, which exclude the costs of stock-based compensation. For companies like Twitter, which issues a lot of stock grants and stock options, the difference between the two can be considerable. It’s easy to see why the firms do this: the adjustments makes them look a lot better. According to its own figures, Twitter generated seventy-five million dollars in “adjusted EBITDA” during 2013. But, since this is an exercise in old-fashioned valuation, I’m going to stick with Yahoo Finance’s numbers. Umm, I question the logic that firms exclude stock options expenses to "make them look a lot better". Last I looked, stock option expensing was still based on the old black scholes model, which penalizes volatility. And dilution is not the same as an expense, which is why secondary offerings are not expensed- and if anyone ever suggested expensing a secondary as if it were a cost, wall street would say the proponents of this would need their heads examined. Expensing stock options in this way actually penalizes tech companies unnecessarily which is why analysts that are really trying to value these companies don't do it. Most financial writers that make a huge deal out of this actually have an axe to grind. *Twitter is investing heavily, and hiring a lot of people, which helps explain why it isn’t making any profits despite rising revenues.* Therein lies the rub of any growth company, and this guy kind of glosses over it. Salaries are only a portion of the investments twitter (or amzn, nflx, etc) makes. Other investments such as bldgs, warehouses, patents etc- carry though to the valuation of the company. To hear these "valuation hawks" tell it, TWTR, AMZN, NFLX etc spend all their cash flow on pizza lunches for workers, and it flies out the door forever.