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Author: saunafool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 20277  
Subject: TWTR Date: 11/8/2013 4:49 AM
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I am now going to talk myself into/out of buying Twitter...

My wife has recommended exactly 5 stocks over the course of our 14 year marriage.

GOOG at the IPO: I could have bought at $105 (I ended up buying a few years ago at $450)
APPL around 2004: I could have bought at around $20, maybe less. Ouch.
LNKD at IPO: I could have bought around $80 (if it keeps falling, I will be interested in this one)
FB at IPO: $38 (after I heard about APPL and GOOG for so many years, I bought a small bit at IPO and doubled the position when the stock fell to $19. Currently up ~90% after 18 months.)
TWTR at IPO: $45

She insists that I buy TWTR. I may have to take a small stake for domestic harmony. $25 billion market cap. $500 million annual revenue and no earnings. That's almost as ugly as Tesla's valuation.

FB, while ridiculously priced, sells for 14X sales with projected earnings of $0.83/share for 2013. Still nosebleed territory, but at least there is something there...

I understand that these social platforms and huge gross margins can grow very quickly. Not value stocks, but growth stocks with remarkable potential. I see FB, LNKD, and TWTR as following:

* Facebook is just a part of the internet now. I have to share pictures of my little boy with my family and friends across the ocean. There just is no easier way to do it. From a business perspective, FB is only starting to leverage their 1+ billion users to generate revenue. They are already profitable, and it is pretty easy to imagine multiple revenue growth paths (different forms of advertising, sponsored memberships, gifts, buying event tickets, club memberships, as a business platform for consumer businesses). They will have to execute, but they are already doing pretty well.

* LinkedIn is the only pure business social network. Yes, there is a lot of garbage on LinkedIn, but it has a power that nothing else has. I'll give you an example. My company has been asked to explore the market in Indonesia. We do not know a single person in Indonesia and have never been there. However, there are basically 7 big customers we need to sell to. Via LinkedIn, I have connected to several of them and am now in communication with the key people at 3 of the accounts. I will soon be upgrading to a business account at 15 Euro per month in order to delve deeper into contact lists to get in touch with more key people. I just have no idea how I could do this without LinkedIn.

There are groups on LinkedIn with thousands of target customers for us--and we are in a niche of a niche of a business. I can think of 20 ways LinkedIn can leverage these groups--sponsored webcasts, job placement, advertising to name just a few.

*Twitter I am not so sure about. I don't personally use the service. I see no need for it outside of the entertainment industry. Our marketing company uses it for our company. I call it "Tweets to nowhere" because no one follows us. We just aren't in that kind of a business. (The justification is that somewhere in the back end, the links back to our website boost our Google search results.)

Anyway, at a market cap of $25 billion with revenue of $500 million, what does Twitter need to do to justify the current valuation? We will assume they can turn profitable and achieve 20% net margins, like Facebook. We will also assume a P/E of 40 is acceptable during the high growth phase.

The short answer is that revenue needs to double 3 times up to $4 billion with net margins of 20% and earnings of $800 million. P/E of 40 would result in a market cap of $32 billion. Let's assume they keep growing revenue at the current rate of 100% per year for 3 more years (highly unlikely) to get there as quickly as we can optimistically imagine. The result would be an ROI from today's price of about 8.5% (assuming no dilution from stock options). Not really worth the risk.

Maybe I'll buy 5 shares so I can tell my wife she owns it.
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Author: rjf53 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16635 of 20277
Subject: Re: TWTR Date: 11/8/2013 7:12 AM
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Maybe I'll buy 5 shares so I can tell my wife she owns it.

Smart guy, very smart.

B

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Author: stillwater9999 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16636 of 20277
Subject: Re: TWTR Date: 11/8/2013 7:21 AM
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Buy your wife a copy of "Security Analysis" by Graham and Dodd for the holidays.

sw

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Author: TMFHockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16637 of 20277
Subject: Re: TWTR Date: 11/8/2013 7:33 AM
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Remember:
http://www.youtube.com/watch?v=Sbqv3MwwVd8

Bob
RYR Home Fool

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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16639 of 20277
Subject: Re: TWTR Date: 11/8/2013 10:20 AM
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Ask your wife for a compelling argument of 140 characters or less.

kelbon

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Author: saunafool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16640 of 20277
Subject: Re: TWTR Date: 11/8/2013 10:32 AM
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Buy your wife a copy of "Security Analysis" by Graham and Dodd for the holidays.

What? Are you trying to get me killed?

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Author: StuyvesantGrad70 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16642 of 20277
Subject: Re: TWTR Date: 11/8/2013 11:50 AM
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Keep the wife happy and buy a meaningful stake in Twitter.

Twitter's 140 word limit is a stroke of genius. The average attention span is probably no more than 20 seconds, so Twitter is a great way to reach the masses.

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Author: rovingartisan One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16643 of 20277
Subject: Re: TWTR Date: 11/8/2013 1:42 PM
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Didn't you just talk yourself into buying more FB and LINKD?
- Rovingartisan

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Author: saunafool Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16645 of 20277
Subject: Re: TWTR Date: 11/8/2013 2:27 PM
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Not at current prices. I think the tide is turning on all the high flyers right now. TSLA being example #1.

Might even raise some cash...

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Author: ajm101 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16650 of 20277
Subject: Re: TWTR Date: 11/8/2013 9:22 PM
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Your wife's track record is awesome. Not sure why you wouldn't get more than 5 shares.

The value proposition would be the ability to target adds based on social and trending factors, which would probably lend them to better monetization than FB or GOOG (I don't really believe that in the case of GOOG).

I'd sell all the FB and put it towards a 1/2-1/3 position in TWTR with the intent to average down (if I were you).

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