Twitter, the very popular microblogging platform and social media site, is on a roll lately. It is now priced at 47 dollars and its worth around 40 billion dollars. Not bad for a company that doesn’t even make a profit.
If you are shaking your head and shaking a little bit with fear, you can be excused. Why? Your reaction is the same as the reaction of a person that lived through the first dot com crash. The first dot com crash happened in 2001 and it saw tons of internet companies, most of them unprofitable, going down in flames. Most of these companies rolled out and they had like multimillion dollar valuations, lot of money was on the table, people were investing their life savings into these companies and then all of a sudden the party was over. At the end of all that carnage, the American economy slumped and a lot of people lost their jobs. Tons of net companies folded overnight and the only a few survived. We’re talking, of course, about Amazon, Ebay and Yahoo.
Well, if you think that the current market euphoria over text stocks is in danger of repeating the same mistake, you may be right, well at least partially. You may be right on the point that it’s crazy to value a company of 40 billion dollars when it hasn’t even made a red cent in profit. This is clearly the case with Twitter. Also, this is in less dramatic terms in the case with other companies like Yelp. In terms of actual income, they’re not making that much money but the market is like giving them this huge valuations. A lot of market critics would say that Twitters logo should be a canary. Why a canary? Back in the 1800, miners would put a canary in a cage in a coal mine while they are working. They would continuously look at the canary to see how the canary is doing. If they see the canary dead, they start heading for the exits. Why? Canaries are very sensitive to poisonous gases. Twitter may have the reverse effect. By Twitter being valuated so much, it may be the warning investors need to get out of the market before it all implodes. The problem with geting out of the market while everybody is plowing their money in and driving stock prices higher and higher is that you don’t want to kick yourself for getting out too early. In other words, you’re fighting against your own greed. Well, take it from somebody who lost over 50,000 dollars during the first dot com crash. It’s not gonna be pretty when the market wakes up.
So, we’re no satng that you should ditch your Twitter stock, we’re not even saying that you should get out of the market right now but pay attention to what’s going on. Analysts are stomped why Twitter is at 47 dollars a share. 47 dollars that is just crazy for a company that isn’t making any money. A lot of critics who say that a lot of its accounts are fake and has a high burn out rate among users. So is this a question of hype? Is this a fad stop? Who knows. Be that as it may, do your research, pay a careful attention to all the signs that the stock market is giving you right now and make your decision soon.