The Twitter In The Coal-mine: The End of Asset Price Inflation?
Courtesy of Gonzalo Lira
So Twitter (TWTR) released some user figures, and they are not good. Bottom line, they’re losing money, and their user-base is shrinking—which is why their stock took an 11% tumble in after-hours trading as I write these words. From a high of 71.31 back in December 2013, to 42.62 at the close on Tuesday (April 29)—and then down to 37.83 in after-hours trading once the news came out.
In other words, Twitter’s stock has fallen nearly 50% in four months. Eeesh!
For those of you keeping score, this is the second internet bubble, or “Bubble 2.0.”
So from the point of view of investors, they would never see a profit via a dividend or some other yield—they would only see a profit if the stock price rose.
In other words, people weren’t investing in social media companies—they were speculating, hanging their valuations on user numbers and traffic.
Twitter, of course, failed to deliver on the metrics. So Twitter’s stock has taken a beating. And will probably continue to take further beatings, as its numbers flatline.
But Twitter and its situation aren’t important—what’s important is the fall in Twitter’s stock price points to the single big problem we have been having since 2008: Investors don’t care about yields, only asset prices.
No one is investing—they are all speculating. Nobody is buying an asset—be it equities, bonds, real estate—and sitting back contentedly receiving an 8% or 9% yield. No, everyone is buying with an eye to a sale—hopefully soon—without even bothering to cash the laughably tiny dividend check.
