Don’t buy Twitter shares!

A few friends of mine in California calling themselves “Twitter“ asked me if I want to buy 70 million of their shares at 26 $ a pop. I did a quick calculation and noticed that I don’t have enough money. Because of this, they are now having a yard sale which they call “IPO” for some inexplicable reason.

It may not be nice of me to tell you this behind my friends’ back, but I warn you: Don’t buy Twitter shares! They are a bad investment.

  1. Twitter doesn’t produce or sell anything that people need. Who needs a website or service where friends tell me how hungover they are, newspapers write what I already read in the morning paper and people try to show off photos of their ugly babies? Nobody needs that.
  2. “But,” I hear you say “Twitter has 200 million daily users. That shows how popular they are.” Sure. But these users don’t pay anything. It’s like these free newspapers you get in the Metro or like porn websites: you use them because they are for free, but you would never pay for them.
  3. Also, this number of users should be taken with a large barrel of salt. After refusing to get a Twitter for a long time, I finally signed up and I am now on Twitter myself. But that doesn’t mean that I use it every day or that I take it seriously. If I had to drop one of the social media services I am using, Twitter would be the first to go. It is the least useful one and it’s main purpose is killing time while on the phone with my Mom. That’s hardly a business model worth billions of dollars.
  4. What is more: Twitter will never be able to charge its users. Unlike quality publications like the New York Times or this blog who can switch from a free provision of services to a paywall model, nobody will pay for Twitter because it’s not unique. If Twitter started charging users, most of them would leave right away. And I bet that within a week, somebody else will have set up a site where you can upload short messages for others to read. It’s not a hard thing to copy really.
  5. The only way Twitter actually earns revenue is advertising (unless they also sell your personal data like other social media companies), but I doubt this business model will work. Online ads work well for Google because I use a search engine to search for stuff. If I look for dentists, it makes sense if some ads for local dentists appear. But Twitter is not used for searches, and thus advertising will not be considered as useful.
  6. The reliance on advertising revenue also means that the only way to increase revenue is to put up more ads. Doing this would annoy users and drive them away.
  7. Online hypes come fast, but they also die fast. I remember when a few years ago everybody was hyped up about “Second Life”. I never got around to having a look at it, and by now I think it is dead.
  8. Ask Rupert Murdoch about his investment in MySpace or the people who bought shares in GroupOn.
  9. Last month, Twitter announced its most recent financial data: in the 3rd quarter it had doubled its revenues (to 168 million $). In the same time, it managed to triple its losses to 64 million $. – Seriously, if I came to you asking for money for a business whose losses were rising faster than the revenues and which had never made a profit, you’d think I was insane. But if you invested money in such a business, you’d be insane too.

twitter-bird-deadHaving said that, if you manage to get some shares in the IPO, you may be able to make a quick buck: on 4 October 2013, shares of Tweeter, a retail chain which had gone bankrupt in 2007 but whose shares were still being traded at rock-bottom prices, shot up by 1,500% in the aftermath of Twitter’s IPO announcement. Apparently, investors had confused the two companies and hadn’t realized that Twitter had not yet gone public and that it would probably not go public with penny stocks. So much for the rationality of the markets.

About Andreas Moser

You will most likely find me in the forest, next to the lake, reading a book. Just follow the cigar smoke!
This entry was posted in Economics, Technology and tagged , , , , . Bookmark the permalink.

8 Responses to Don’t buy Twitter shares!

  1. dino bragoli says:

    Very amusing.
    I am playing GTA5 at the moment, I know I know, I’m weak and my misspent youth is catching up with me, but I can’t help it, anyway it’s more acceptable to my wife than my online porn addiction…
    Anyhow, in the game they call two social media sites “Bleeder” and “Lifeinvader” presumably Twitter and Facebook. Lovely.

    • Very appropriate names for these social media sites!
      I am not into these new high-tech fast computer games, but I miss the games of the 1980s, with which I grew up, like Railroad Tycoon or Civilization.

      • dino bragoli says:

        I recommend Far Cry2, Far Cry3, GTA4, GTA5, and Red Dead Redemption.
        These are the latest ‘sandbox’ type games where you can wander freely over maps the size of the island of Elba at least, playing the theme of the game but also hunting and being hunted by wild game if you aren’t quick enough, also racing other players live online, a lot fun and very good value because they provide so many hours of gaming..
        They are nothing like the old school ‘corridor’ type games where you walk along a set passage and windows open with the same gunman or giant lizard wearing a dog collar popping up for you to shoot with your laser gun… total rubbish and totally boring.

        As for 1980s style games you could try Total war: Rome 1 or 2.
        There is a series of Total war games, Shogun, medieval and Napoleon etc., very retro in style but modern in function. Very similar to Railroad Tycoon and Civilization which I loved.

  2. Phil Anderson says:

    Great article – if only there was some way I could rapidly share it with a bunch of people who share my interests..

    • Great comment. :-)
      But in all seriousness, I think Twitter is a very bad way to share news with your friends because so much comes in so quickly that if you ain’t watching for half an hour, I might easily miss your or another important message.
      It’s really no substitute for an e-mail newsletter or an RSS feed.

  3. crankypants says:

    ~its main purpose is killing time while on the phone with my Mom.~
    ha! I feel you on that one.

  4. I appreciate your opinion but I’m afraid that people will be less and less capable of reading longer and more difficult articles, because unable to concentrate. Therefore, my personal opinion is that twitter and company will be the future. In the future, people won’t read anymore to learn something but to socialize. Best regards. Martina

  5. Kavita Joshi says:

    I think twitter is also a way to network with others with the same interest and it is a good way to follow and see the trend in various areas…I agree that it would never be able to charge it’s user for it’s use…but so is Facebook and other networking sites as no one wants to pay for any sort of online website in general these days as long as it’s for personal use. And I agree we do have a number of other options for all of these…but still I guess never having used twitter before and now being a regular user of twitter I guess I would like to keep using it

I am curious about your comments:

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s