Michael Synder makes the following salient point over at Zero Hedge:
Shouldn’t Internet companies actually “make a profit” at some point before being considered worth billions of dollars? A lot of investors laugh when they look back at the foolishness of the “Dotcom bubble” of the late 1990s, but the tech bubble that is inflating right in front of our eyes today is actually far worse.
For example, what would you say if I told you that a seven-year-old company that has a long history of not being profitable and that actually lost 64 million dollars last quarter is worth more than 13 billion dollars?
You would probably say that I was insane, but the company that I have just described is Twitter and Wall Street is going crazy for it right now. Please don’t get me wrong – I actually love Twitter. On my Twitter account I have sent out thousands of “tweets”. Twitter is a lot of fun, and it has had a huge impact on the entire planet. But is it worth 13 billion dollars? Of course not.
You can talk about “brand value” all you want, but the companies with actual Brand Value are ones that are profitable, and have been for a long time. That is what makes their brand valuable. Twitter’s value is in improving someone else’s brand value, and trying to squeeze a profit out of that could kill the value that people currently see in Twitter.