When Chinese Internet companies come to the United States for roadshows, they pretend to be “China’s Google” or “China’s Amazon,” but there is a big gap between their market values and those of their American counterparts. For example, the latest market capitalization of “China’s Google” and “America’s Google” was $77.5 billion and $633.6 billion respectively.

In 2017, Weibo became the first Chinese company to take on its American counterpart. For the sake of its market cap, Twitter might say, “I’m America’s Twitter.” Will investors believe it?

Was attacked by Weibo

On November 8, 2013, Twitter went public on the New York Stock Exchange. On that day, its share price was $44.94, corresponding to a market capitalization of $31.2 billion. Devotees expect Twitter to become the world’s leading advertising medium, like Google Valley and Facebook.

Five months later, in April 2014, Sina Weibo, considered the “Disciple of Twitter In China,” went public on nasdaq. However, there is a big difference in concept between the two: Twitter was initially positioned as a “news platform with mild social relations”, and its transmission efficiency is above all else: no more than 140 characters, delayed uploading of pictures, anti-chronological ordering of messages… In word, Sina Weibo attaches great importance to social interaction, but in action, it follows the principle of “realization above all else”. It was this difference that led to Twitter being crushed by proteges

In its first two years as a public company, Sina Weibo’s market value fluctuated between $2.6 billion and $4 billion, but the gap has narrowed as Twitter has declined.

On August 1, 2014, The market capitalization of Weibo and Twitter was $2.9 billion and $21.7 billion, respectively, one eighth of the latter. By December 1, 2015, Weibo was worth a quarter of Twitter.

Since then, Weibo’s performance has improved year by year, and its market value has rapidly overtaken Twitter: In March 2017, Weibo achieved a reverse attack on Twitter with a market value of $11.4 billion.

On July 28, 2017, Twitter announced Q2 earnings: MAUs stopped growing, revenue fell year over year, and operating loss of $116 million. The poor results sent Twitter’s shares down, to $15.75 as of Aug. 10, giving the company a market capitalization of $11.5 billion, or 64% of Weibo.

 

Why was Twitter abandoned

If you do not advance, you will fall back. The other half of the reason Twitter was overtaken by Twitter is that it failed to live up to its own expectations. It was less than $12 billion in August 2017, less than 40% of its value when it went public in November 2013. The data show that Twitter has significantly underperformed the broader market since 2015.

The first reason Twitter was abandoned by investors was its poor performance, or more specifically its profitability, against the backdrop of Twitter.

In 2012, Twitter’s revenue was $317 million, and Weibo’s revenue was $66 million, representing 21 percent of Twitter’s revenue. In 2016, The revenue of Twitter and Weibo was $2.53 billion and $656 million respectively, with Weibo accounting for 26% of Twitter. In five years, weibo has grown from a fifth of Twitter’s revenue to a quarter.

In 2012, Twitter and Weibo had net losses of $79 million and $103 million respectively. In 2013, Twitter suddenly lost $645m (the cost of equity incentives on Q4 alone was $521m) and has since narrowed but slowly. Twitter posted a net loss of $457 million in 2016 and $178 million in the first half of 2017. In 2015, Weibo made a profit of usd 34 million, in 2016, the net profit exceeded USD 100 million, and in the first half of 2017, the net profit reached USD 120 million.

Assuming that the net profit of Weibo can reach 250 million DOLLARS in 2017, the price-earnings ratio corresponding to the market value of 18 billion dollars is as high as 75 times, much higher than FB (about 40 times).

Strategic uncertainty, infighting, and divestments by existing shareholders are expected to have a significant negative impact on Twitter, but most importantly, continued losses. American investors are blue-chip enthusiasts at heart and have a limited tolerance for temporary unprofitability. Especially when there is the first profit in the same company, the profit will be hot, the loss of the abandoned.

In addition to its poor performance, Twitter’s user numbers have also been disappointing.

In Q1 2015, Monthly Twitter activity (MAUs) exceeded 300 million, and slowly rose to 328 million in Q2 2017. Facebook has more than 2 billion monthly live users.

DAUs, or daily life, has more gold than monthly life. In Q2 2017, Facebook reached 1.32 billion daily active users. Twitter won’t even break out DAUs, but has been coy about “year-over-year growth” since Q1 2016.

Instead of saying how much it was last year, just saying it’s up 10% from last year leaves investors guessing. Twitter is thought to have between 150 million and 200 million daily active users. The more evasive, the worse

Three reasons Twitter lost money

There are three main reasons why Weibo is in the black while Twitter is in the red:

The first is that Twitter’s gross margin is lower than Weibo’s, and the gap has been widening since 2015.

With its global reach, Twitter is understandably expensive to operate. In the face of competitors such as FB and Google, Twitter’s traffic acquisition costs (TAC) remain high, which is also an important factor affecting its gross profit. In 2016, Twitter’s TAC was $142 million.

In the first half of 2017, Twitter’s gross margin was 18 percentage points lower than Weibo’s! Similar companies, gross profit margin difference a few points can determine the outcome, let alone 18.

The second is the high proportion of three expenses.

Research, marketing, and administration expenses, which together accounted for 87% of revenue in 2015, have grown to 68% in the first half of 2017, a big improvement. During the same period, weibo’s three expenses combined accounted for 47% of revenue, down from 62%.

In the first half of 2017, Twitter’s gross margin was 18 percentage points lower than Weibo’s, and three expenses accounted for 11 percentage points higher than revenue, a total of 29 percentage points.

Finally, the cost of equity incentive is too high.

In 2013, Twitter paid $600 million in equity incentive costs on $665 million in revenue. It is too much to say that this is an attempt to settle old scores, with equity incentive costs still equivalent to 31 per cent of revenues in 2015 and 24 per cent in 2016. In this case, the reduction of internal personnel cash further shook the confidence of investors.



Is there hope for Twitter?

Twitter has no chance of becoming “America’s Twitter” because of three factors.

The first is missing the “right time”.

For Internet companies, only 3 or 5 years has changed an era. Twitter has been wandering in its strategic direction and product concept for several times. God will not give it another chance to turn over the tide.

The second is lack of “geographical location” (i.e., competitive environment).

Weibo’s success is largely due to the absence of Facebook and Google from the Chinese market. Twitter has not had the same luck. In addition, Twitter also has to deal with a number of “unicorns” such as Snap, Instagram, WhatsApp and Messenger. In China’s special “ecological environment”, Weibo is the only place where millions of Chinese can “watch” and act as “keyboard warriors”.

Even more deadly is the loss of “renhe”.

Can a team like this — infighting, cashing out, departures — revive Twitter?

There is also some distortion in Twitter’s revenue distribution: 79% of “international MAUs” come from outside the US, while around 60% of revenue comes from the US. The cost of operating overseas is higher. # Twitter doesn’t have this kind of distortion

In short, Twitter has no chance of turning itself around, and being bought by a giant is its best bet.

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