Tweet this: You don’t need profits to make money

Wall St New YorkThe good folks at Twitter thought that one share in their company was worth $26 when they put part of the company up for sale yesterday. Fortunately, the traders did not agree. At one point they reckoned each share was worth $50, ultimately settling on $44.90 at the end of business.

This is all so different to Facebook when it launched itself onto the stock market. The company valued its shares at $38 only for the stock market to say that this was a complete nonsense, marking the shares down after a short period to just $17.73. That price has recovered and Facebook is now trading at just over $47 – showing that stock traders think each share is only worth marginally more than one from Twitter.

Facebook is currently on course to make a profit of just under $1bn this year. Sounds great, until you look at Google’s accounts and see they make that amount every three or four weeks.

Meanwhile, Twitter has never made a single cent of profit in its seven year history. According to reports, Twitter is losing three times the amount of money it did even a year ago, with the latest quarter’s losses stacking up to a whopping $65m – that’s more than $8 every single second of the day.

So one company is making reasonable profits, albeit a lot less than other web giants, whilst another company is making stonking great losses, yet the stock market values their shares at roughly the same. Indeed at the beginning of these firms’ stock market careers the profitable company was thought to be worth less than the profitable one.

Confused?

Economists will no doubt debate the difference for years to come. Financiers will have a list of reasons to justify the differences. But they aren’t the real reasons behind the massive stock market flotation of Twitter compared with the disaster of Facebook. The answer is simple – traders simply like Twitter more (which is a real problem for Facebook considering they want us to “like” everything).

Ultimately it comes down to a gut reaction, a feeling, a socially constructed view that Twitter is, well, just nicer than Facebook.

It is all reminder of the fact that sometimes we focus on financial profits at the expense of focusing on social profits. Getting people to like you and your business can help you financially. Focusing on the numbers might be important for the accounts department, but for the business as a whole it is only part of the story. What people think about your business, what people say about your business and what people feel about your business all add up to helping your finances. They did for Twitter. Tweet that.

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