As the world holds its collective breath for the opening bell of trading in which Twitter® will release its IPO (symbol TWTR ) upon the financial markets. Regardless if it does good, bad, or indifferent. I just wanted to note a few things for you to ponder because, after all is said and done, regardless of hype, this is a business. And as entrepreneurs it is a requisite that you are able to understand business is business. Yes, hype can play its part however, understanding what is, what is not, where the money is made, and where it is not – is not for parlor games. That is for the financial media to play, not you.
So on that note here are a few items as true entrepreneurs you should find interesting. For those of you that find it startling, I’ll contend you paid too much attention and was lulled into the hype. For those that say, “I thought so.” congratulations, you were thinking as you should.
Below is an excerpt from an article I recently read on the financial blog Zerohedge.com. You can read the entire article here.
It was written by Michael Snyder. (The links contained are his as to back up his statements contained within the post. Not mine.) He notes:
#1 In just a few days, the Twitter IPO is expected to raise close to 2 billion dollars even though Twitter actually lost 64.6 million dollars last quarter and has a long history of not being profitable.
#2 It is being projected that after the IPO Twitter could have a market valuation of more than 13 billion dollars.
#3 Twitter is not expected to make a profit until 2015 at the earliest.
#4 According to CNBC, Pinterest is currently valued at 3.8 billion dollars even though it has never earned a profit.
(He goes on to list 10 more points and more which I highly encourage you to visit and read the full article.)
Never mind what their stock valuations are currently. A stock is not a company. The stock today lives in a world of its own divorced from reality. What I’m talking about here is business. What and how are these enterprises going to generate income as in revenue to support these valuations? Remember, if the markets as I have been pounding my fist over the last few years is based purely by Federal Reserve interactions. Adulterating them beyond the resemblance of the financial markets everyone once understood and could agree on. Then these Wall Street darlings can not only crash to Earth without warning, more than likely the bird that should chirp the loudest will be sprawled out in the bottom of the mine shaft. Not only can it happen in the blink of an eye, that blink is now considered an eternity in today’s stock market.
If you think that’s hyperbole or that my past writings about the warnings of High Frequency Trading (HFT) have been unfounded. I thought I would post a link to a short (under 1 hour) documentary explaining exactly what HFT is and what it has done to financial markets and systems. I was just told of it as it was just released this November 4, 2013.
When I first saw it is was just under 10K views. How this insightful short documentary doesn’t go viral will be beyond me. However, one would be surprised just how many people don’t want to know or understand their own finances. People will do almost anything not to do something, rather than to do something.
As one watches or relaxes after this now over-hyped IPO is brought forward. (So much so they felt the need to increase the initial offering) Watch this film and then put into perspective for yourself what you watched take place both in this IPO as well as some of the past. i.e., Facebook® and others. And ask yourself: Was what took place real market based formation? Built upon such things as fundamental analysis consisting of true revenue, profit, and accounting based on 1+1=2? Or, Nothing but HFT front-running orders in ways that make casino owners blush?
As I’ve again pounded this keyboard over the last few years when nobody would give HFT the time of day warning of its corrupting nature and abilities to adulterate the financial markets in ways never before seen. Along with the “free money” flowing from the Federal Reserve via their quantitative easing policies (QE). It would seem not only was I ahead of the curve, but the bulk of Wall Street itself, still doesn’t get it. (as it’s noted within the documentary itself the figure is upwards of 90%)
I for one can’t believe anyone that is either an entrepreneur or works within any organization with the entrepreneurial mindset can look at what is taking place in Silicon Valley today, without shaking their head thinking. “OMG!”
Again, I am not saying these are, or are not, great, creative, disrupting, intellectual wonders that provide value. However I believe social media today will not look anything like the social media we now know of today. So forecasting their valuations years into the future form here with any reasonable calculations is near lunacy. (But that wont stop the parade of analysts nor economist from doing so.)
Just as AOL® and Blackberry® were once kings. They too had IPO’s that were all the rage just a few years back. Now? They have been dethroned and disrobed.
So what I am saying is this: As an entrepreneur, it’s your job to know, understand, and quantify the money, from the nonsense.
© 2013 Mark St.Cyr