Facebook's (FB) earnings report sent shares on a wild ride last night after the company beat on the top and bottom line but cautioned that use among young teens was flat or possibly negative during the quarter.
Potential investors in Twitter's IPO (TWTR) should be forced to look at the 15% after-hours drop in shares of Facebook before being allowed to buy a single share of Twitter. The fact that teens are dropping off of Facebook provides a stark reminder of the fleeting nature of popularity on the Internet.
Facebook has 728 million daily users and generated $2 billion of revenue last quarter. If no one ever signed up for Facebook again, the company could survive just milking the loyalists. Twitter has 1/4 as many users and will be lucky to do $2 billion in revenue over the next two years.
As my co-host Matt Nesto and I discuss in the attached video, to work as a business or investment Twitter needs to prove its users won't defect once the company starts trying to "monetize" them aggressively. Facebook is much "stickier" than Twitter.
No one has any earthly idea if Twitter will be at all relevant in ten, or even 5 years. It’s not just that some once-hot social Internet hangouts disappeared. They all have. Not one of the hot social sites from 10 years ago is meaningful today.
A One-Teen Survey
I asked 16-year old investing/ actress Rachel Fox if Facebook still mattered to she and her besties. A sample size of one is less than statistically significant, but she’s the only active teenage investor I know and she’s undeniably cool.
It’s probably worth noting that I asked Rachel the question via LinkedIn (LNKD) and she answered over Twitter.
I'm pretty sure what Rachel was saying is that Facebook has been reduced to one of many different places she and her friends go online to socialize and whatever else people her age do. The world is an ice cream parlor to teenagers and Facebook is just another flavor.
“So many flavors. Everyone gets to choose their favorite.” Facebook is vanilla. It's a staple. Vanilla ice-cream will never go away. Twitter is mint chocolate chip. It's an acquired taste. Twitter is just another passing flavor among the teenage set. There is no particular loyalty.
To sustain advertising pricing power, Twitter will need loyalty and right now it doesn't exist. That's a huge problem.
For what it’s worth Ben & Jerry’s was once a public company. In 2000 it sold to Unilever for $326 million or about 6.5x revenues.
Twitter will be valued at roughly $14 billion when it goes public. That puts it around 25x expected 2013 revenues.
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