Twitter is a remarkable leap of faith
In the real investing world, the situation is simple. Facebook is making a fortune, while Twitter is losing one.
That's because Facebook is making a fortune and Twitter is losing a fortune. In the world of stocks, that's pretty much the only real salient piece of information you need. But in the world of Twitter -- or at least my bizarre, sometimes ridiculously contested Twitter feed -- it is irrelevant.
This weekend I lit up a firestorm on Twitter, talking about how advertisers tell me they like Twitter because they get promoted without ever having to pay Twitter anything and they like Facebook because even though they have to pay Facebook and pay it handily the results are fantastic.
Facebook spends a huge amount of its time on its conference call talking about the return on investment advertisers crave. Twitter spends a tremendous amount of time on its call defending its existence and the relative metrics it wants you to evaluate it by. Facebook has accelerating revenue growth. Some observers would argue that Twitter has revenue growth but it isn't accelerating.
Facebook has made the transition from a curious anomaly to a company that's extremely lucrative with a very good mobile business. Twitter has made the latter transition but not the former.
In other words, Twitter is playing by the old pseudo-rules of 2000-01, while Facebook is playing by the same rules as every other company, as it trades at a high multiple per share but it at least has earnings to multiple against.
When I suggested that Twitter might have more luck selling ads if there were fewer attacks by mentioners, a sizable cohort of my feed was furious. The idea that I thought that a Gresham's law situation might be developing whereby the bad money drives out the good was viewed as total heresy.
Suddenly it didn't matter what the advertisers told me, because Twitter is making a ton of money anyway -- not true. It was irrelevant what I thought, because I am a celebrity user and my experience isn't average. That's just plain moronic. I always make it a practice to ask CEOs what they are doing to get new customers, and they invariably say they put ads on Facebook and get a great return. When I ask about Twitter, they invariably say: "Why do we have to place an ad on Twitter? The publicity comes for free."
I had not seen a group of people so vociferous about a stock since the dot-com era, when you had to embrace what they embraced or you would be run over. But I don't need to do that anymore. I would rather just convey what I see and know and let people decide. I am not cowed by people attacking me as a know-nothing. I am, alas, a know-something. I know something that these advertisers tell me that the people in my feed don't know.
Now, it is certainly easier not to say anything. The Twitter lovers want me to adopt my late grandmother's admonition that if you don't have anything positive to say don't say it.
But in the end, I am actually trying to make people money, not cheerlead. Maybe this is the quarter, like Facebook had not that long ago, when it all came together: the page views soared, the uniques snowballed, the attacks stopped, and the advertisers saw a tremendous bang for their buck on top of the free publicity they got.
That would be terrific for all the lovers of Twitter. Plus, I like that Anthony Noto has joined as CFO. He's no-nonsense. He will help. But the idea that a company with no earnings and a slowing rate of growth is somehow better than a company with terrific earnings isn't a statement about my inability to value stocks. It's a statement about a remarkable leap of faith that I am struggling with, even as I enjoy the banter that tells me just how dead wrong I really am. I sure hope so, at least for investors who own so much of it and are so hopeful that this is the quarter when we will see it all come together.
Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners. The portfolio is long FB.
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