In the showroom it looked bold and stylish.

In my bedroom, seen through the window from the pavement below on winter evenings, it made our shared house look like something from Amsterdam’s sex worker district.

Only one person ever actually rang the doorbell to make enquiries.

But from the moment I plugged that stereo in, I had a serious case of buyer’s remorse.

You know – that hollow feeling after you splash the cash on something that seemed so exciting, only to immediately wish you hadn’t.

Red letter day

I suspect even the world’s richest man knows such remorse…and to the tune of the $44 billion he’s agreed (again) to pay to acquire Twitter.

Elon Musk’s offer for the ubiquitous social media platform was accepted back in April.

But then – coincidentally I’m sure – as the stock market crash unfolded, Musk changed his mind. 

Would a mob-fuelled hate-mongering social network really look so good next to his electric cars and spaceships?

Would he ever get his billions back?

We’ve all been there.

Musk protested he was sold a pup. Or millions of pups – fake Twitter accounts run by bots.

Up to 33% of Twitter’s users were false or spam accounts, his legal team alleged in August.

And nobody wants to waste billions on that.

However for reasons that still aren’t clear – but presumably are legally watertight – Musk now says he will buy Twitter. And for the original offer price too.

Given the cost of the drama to his status and bank balance, Musk may even have a rare case of what I call buyer’s remorse remorse – where your original remorse is so bad you ultimately throw even more good money after the bad to rid yourself of the feeling.

To avoid that costly fate I soldiered on with my sordid stereo for five long years, through ridicule, laughter, and damage to my reputation.

Musk could only take six months of the same.

Twitter 2.0

I do consider Elon Musk one of the leading entrepreneurs of our age, for the record.

But I also wonder if in buying Twitter he’s paying an astronomical price for his hobby of saying – or tweeting – whatever comes into his prodigious mind at any given moment.

Because what can Musk do with the platform, really, that even Twitter’s creator, Jack Dorsey, couldn’t manage in two stints at the helm?

Whatever Twitter’s ultimate potential, it’s notable that both Musk and Jack Dorsey believe it can’t be achieved as a publicly-listed company.

Musk said so in his letter announcing the takeover offer.

And Dorsey has said so privately… in text messages to Musk! The exchanges between the two billionaire pals we revealed during the recent legal tussle.

Dorsey apparently thinks Twitter should never have become a company, but rather some sort of platform or foundation. Presumably this entity would make and manage rules about how third-parties would access Twitter – and also leave them to build the apps and reap any profits.

Which is probably not $44 billion worth of music to the ears of Elon Musk, nor his accountant.

Perhaps the kindest thing Musk could do for humanity would be to switch Twitter off. Many would applaud such a move, at least until it was replaced by something even more febrile.

Alas Musk told Twitter’s board in his offer letter that be believed Twitter should be the global platform for free speech. So closing it down seems unlikely, even without $44 billion to recoup.

Twitter will have to be reinvented rather than euthanised.

Never trust a shareholder

Judging by recent hints, Musk is reviving his old dream to create an ‘everything app’ that integrates messaging, shopping, and payments, like those used in China and with Twitter at the core.

And apparently such drastic reinvention couldn’t be done while Twitter remained a listed stock.

But is that really true?

I understand the theory. Public market shareholders are supposedly greedy for steady and predictable cashflows and nervous about huge bets that may not pay off.

A year ago a hedge fund manager even labelled London’s Stock Exchange as a ‘Jurassic Park’ full of dinosaur companies that were hamstrung by income-seekers demanding dividends.

I was unpersuaded by that line, too.

UK investors are probably excessively attached to dividends.

But many of the major dividend-payers in London deal in commodity markets, where the clue is in the name. There’s only so much bold innovation you can get out of a lump of iron ore.

Others are Steady Eddie consumer giants that do a fine job generating cash, but where you’d be worried if they were deploying most of their profits to – I don’t know – regularly reinvent toothpaste.

As for the US stock market, its investors are famously tolerant of money-burning companies on a mission, just so long as they believe management has a plan.

Think about the long leash Amazon was given for decades to grow, with little in the way of profits.

Or how software incumbents like Adobe have transitioned from the lucrative business of selling discs in boxes to instead earning small recurring subscriptions for services based in the cloud.

I believe Twitter’s shareholders would also have been all ears if offered a compelling new vision.

I mean, even today Twitter shares trade below a price they hit shortly after it listed back in 2013.

There wasn’t much of an apple cart to upset here.

Not too big to fail

The truth is Twitter’s public shareholders couldn’t support a radical transformation not because they wouldn’t stomach it, but because they were never presented with one.

The year Twitter listed, rival Facebook’s CEO Mark Zuckerberg famously said: “Twitter is such as mess – it’s as if they drove a clown car into a gold mine and fell in.”

And not much has changed since then.

That’s why I don’t like to see leaders of Musk and Dorsey calibre blaming public market investors for hamstringing Twitter’s future.

The 2010s saw big tech winners like Twitter remain private for years as they grew into multi-billion valuations. We ordinary investors weren’t given a look in.

Only when they processed onto the public market like Imperial Star Destroyers trying to taxi at Gatwick could we finally buy into their now gigantic valuations.

It was a frustrating time – made even worse because when we finally did get a chance to back multiple innovative and disruptive companies, it was at the tail end of a long bull run.

By that time almost anything could be foisted onto the US Nasdaq exchange if promoters used the right buzzwords, culminating in the dubious SPAC boom – and the current stock market crash.

Most investors would have gladly swapped the whole miserable experience to instead invest in the likes of Uber, Spotify, and even Twitter when they were far smaller – and riskier– than today.

But they never had that opportunity.

So long and thanks for all the Tweets

We’ll now see if Musk will suffer winner’s curse in taking Twitter off the public markets.

Winner’s curse is the nastier big brother of buyer’s remorse. It’s when you win a bid – for an antique at auction, say, or maybe a social media giant you spent months trying not to – only to pay too much for it.

Musk certainly faces huge challenges if he’s to simultaneously champion Twitter as a free speech platform while remaking it as a Western version of Tencent’s WeChat – and make a profit on his $44 billion investment.

But at least he has the chance.

Twitter’s long-suffering public market shareholders can only take Musk’s money and continue to watch from the sidelines. So let’s not blame them for Twitter’s – or any other company’s – problems.

According to Warren Buffett, the first rule of investing is to avoid losing money. And the second rule is to remember the first rule. I don’t own Twitter shares and never have. But I think that there’s an important lesson for investors like me to learn from the Twitter stock saga.

A takeover bid is not an investment thesis

The lesson to learn from watching the Twitter share price over the last few months is that buying a company’s stock needs to be the result of a positive view of the underlying business. By itself, the prospect of a takeover bid is not a viable investment thesis.

That’s because there’s always the possibility that an attempt to take a company private will fail. And if my only reason for buying the stock is the expectation that someone else will buy it off me for a higher price later, then the attempt falling through destroys my entire investment thesis. As an investor, this is something that I need to consider. 

The way for me to do that is to ask myself whether I’m happy owning the shares if the buyout attempt doesn’t go through. If the answer is ‘no’, then I probably don’t have a positive enough view of the underlying business to justify buying the stock. 

Warren Buffett

As is often the case, Warren Buffett is a great example of someone to follow here. Buffett owns Activision Blizzard stock, which is the subject of an acquisition bid from Microsoft.

The acquisition, bid, however, is not why Buffett bought Activision shares in the first place. Instead, Buffett has been investing in Activision because he has a positive view of the underlying company’s prospects going forward.

Evidence of this comes from the fact that Berkshire Hathaway started buying Activision stock before Microsoft made its approach. In other words, the idea that the company might be bought out for more than its current share price was not part of the initial investment thesis.

This means that Buffett’s risk is limited. If Microsoft’s attempt to buy Activision fails – for whatever reason – then Berkshire will own shares in a business that Buffett feels positively about. 

Twitter stock: lesson learned

The Twitter stock saga might or might not have ended. Maybe the deal gets resurrected one more time, maybe someone else comes in to buy the business, or maybe Twitter remains a publicly traded company.

Whatever happens, the lesson from the story for for me as an investor is clear enough. Buying a stock in order to sell it at a higher price in a takeover is risky. 

Investing is about buying shares in companies based on their long-term business prospects. The possibility of a buyout might be attractive, but it can’t be the main part of my investment thesis.

The story so far

The story began back in late January when Elon Musk began building his stake in Twitter. By March 14 he had amassed a 5% holding in the company. Fast forward to April 4, news broke that Musk had a 9.1% of the stock. The shares surged over 27%. After this news, Musk was invited to join the Twitter board, which he later declined.

On April 14, the stock jumped another 7% when Musk announced he had made an offer to buy Twitter for $43bn. This equates to $54.20 which represented a 54% premium over the day Musk first invested, and a 38% premium before the investment was announced publicly.

Twitter is yet to respond to Musk’s offer but has since adopted a ‘poison pill’ strategy. This essentially means allowing investors to buy more shares to dilute Musk’s ownership. The strategy Is expected to kick in if the Tesla chief acquires any more than 15% of Twitter stock.

Just last week, Musk announced he had acquired the necessary funding for a takeover. Over $20bn of this would come from a series of loans from investment bank Morgan Stanley, with the rest coming from selling his own equity.

Twitter stock closed just shy of $49 last week, rising 3.9 % on Friday. This shows me that investors are becoming more confident that a realistic deal may be on the table.

Why I’m not keen on Twitter stock

Yet for me, the situation is too up in the air to invest. Although Twitter stock is still rising, Musk’s unpredictable nature worries me. After all, there are already rumours floating around in the media that the whole saga is just a well-designed publicity stunt. If Musk does exit the deal, then I expect Twitter stock to tank.

If Twitter accepts a $54.20 per share offer then I would be making around 10% profit. This is by no means a bad return. In fact, if I was a day trader then I might well have taken a punt. However, I prefer a long-term outlook and I invest in stocks that I think can give me that kind of growth each year consistently.

Therefore, while I find the story very interesting to watch, I will not be adding any Twitter stock to my portfolio today.  

The brief story so far

On the first Monday in April, Elon Musk revealed that he had bought just over 9% of Twitter via his shareholdings. It wasn’t clear at this point what his intentions were. It could have been just a passive investment or a more active one to bring about change at the company.

Things changed last Thursday, when Musk offered to buy Twitter entirely for around $43bn. This trade would be at $54.20 per share. Regarding the price offered, he said that it was a “54% premium over the day before I began investing in Twitter and a 38% premium over the day before my investment was publicly announced.”

Twitter shares were trading at $39 before the initial stake by Musk was revealed. It closed for the long Easter weekend just above $45. So it’s clear that investors have taken his involvement as a positive sign overall. Yet if investors really thought the offer was a done deal, I’d expect it to be trading much closer to the offer price.

Why I’m steering clear of Twitter and Elon Musk

Personally, I won’t be investing in Twitter shares right now. There are too many moving parts and too much uncertainty to make this a viable investment in my opinion.

For example, let’s say I invest now at $45. The best-case scenario from a purely share-price-focused viewpoint is that Elon Musk gets his offer accepted by Twitter and I get paid $54.20 for my shares. This would net me a quick 20% profit, but that’s the maximum reward I could expect to achieve. As a long-term investor, this doesn’t appeal to me that much. I’d rather find an exciting growth stock that could offer me good gains each year for the next five years!

On the other hand, the reaction by the Twitter board hasn’t been positive. Certain protective measures against a takeover (such as a so-called poison pill) have been put in place in recent days. If things do get ugly, Twitter shares could slump. Investors don’t want to get caught up in a messy fight between the two parties. In that case, buying now at $45 could see me having to hold the share with an unrealised loss for a long period of time.

Investing versus trading

I think the situation mainly comes down to my risk tolerance and my investing mindset. I see myself as an investor, not a short-term trader. Therefore, I won’t be buying Twitter shares and so will happily watch proceedings unfold from the sidelines.

In the past, backing Musk has been a very profitable strategy. Just look at the returns Tesla shares have made for investors over the last decade. Should I follow him into Twitter then? Let’s take a look.

Twitter stock: a big underperformer

As a long-term investment, Twitter has not been the best performer to date. Indeed, since early 2014, its share price has actually gone backwards (while the Nasdaq Composite index has climbed around 250%).

As for why the stock has underperformed, I put it down to the fact that the company has struggled to monetise its user base. Advertiser interest in the platform has dwindled and, as a result, Twitter has not generated consistent profits. In 2020, for example, it posted a net loss of $1.1bn.

Meanwhile, return on capital employed (ROCE) – a key measure of profitability – has remained very low. Over the last five years, for example, ROCE has averaged about 1%.

Given its lack of profitability, Twitter hasn’t institutional interest in the same way that other tech stocks such as Meta Platforms (five-year average ROCE of about 26%) have.

Can Musk turn Twitter around?

Could things change now that Musk is on the board? Possibly. He is a smart guy who has been described as a “passionate believer and intense critic” of Twitter’s services. He also has around 80m followers on the platform.

So he may have some ideas on how to shake things up and monetise the huge user base (around 200m users). He may also have some ideas on how to boost user growth, which has stalled recently.

On the other hand, he may not be too concerned about profitability (Tesla has never made big profits). Instead, he may just be looking to make changes to the platform. Recently, he Tweeted: “Looking forward to making significant improvements to Twitter in coming months.”

It’s worth noting here that some people believe he may have plans to make the platform more ‘freedom of speech’ oriented.

“We believe one of Musk’s main motives could be to influence moderation policies, which he has often criticised as being too restrictive,” wrote analysts at Jefferies, earlier this week. This could potentially backfire, as any changes to the company’s regulations could deter businesses from advertising on the platform.

Or he could be looking to take it private. He wouldn’t be able to do this in the near term due to the fact that his board agreement states that while he’s a board member, he can’t own more than 14.9% of the company. The fact that Musk has taken such a large stake could potentially flush out other potential bidders though.

Should I follow Musk into Twitter?

Ultimately, it’s too early to know what impact Musk will have on Twitter. Right now, it’s hard to know if his presence will have a long-term impact on the share price.

For now, I’m going to leave the stock on my watchlist. I think there are better growth stocks to buy today.

Reversing a downward trend in the Twitter share price?

Since reaching $77.06 per share in February 2021, Twitter stock has declined dramatically over the past year. The share price has traded below $40 for most of 2022. However, Elon Musk’s recent involvement brought it above $50 again in the stock’s largest intra-day gain since Twitter’s IPO in 2013.

Yet fundamental challenges remain. Twitter has posted a net profit for only two years in the past decade. In 2021, the company paid out $809.5m to settle a shareholder class action lawsuit alleging that executives, including former CEO Jack Dorsey, concealed information regarding its slowing user growth.

Musk’s arrival on the board heralded an initial reversal in the share price, but there are question marks over whether this can be sustained.

A potential shake-up for Twitter’s policies

Despite being an avid Tweeter, Elon Musk has been a notable critic of the microblogging site. For instance, he recently admonished Twitter’s development of profile pictures linked to non-fungible tokens (NFTs).

Moreover, on 25 March, Musk polled his Twitter followers to ask whether the social media network rigorously adhered to the principle that “free speech is essential to a functioning democracy“. Over 70% voted no.

Musk intriguingly stated that “the consequences of this poll will be important.” So, big changes may be on the horizon for the company’s policies, which could have potential implications for the share price.

Indeed, many Republicans are already lobbying Musk for the reinstatement of former US President Donald Trump on the platform. Twitter has banned Trump since the storming of the Capitol in January 2021.

However, Musk doesn’t have a controlling stake and there are 11 other directors on the board. Their support will be critical to enact any future changes. Accordingly, investors may be overly optimistic about the influence the world’s richest man will have on the Twitter share price.

Is now a good time to buy Twitter shares?

For me, while Elon Musk’s involvement is good news for current shareholders in the short term due to increased publicity and speculation about his future plans, I am sceptical that the Twitter share price will benefit longer term.

I suspect Musk’s primary loyalty will remain with Tesla. He’s also the CEO of SpaceX and Neuralink. As a self-professed “free speech absolutist“, the multi-billionaire’s ambitions for Twitter may not be primarily motivated by financial concerns.

I’m also not convinced Musk’s arrival on the board will be enough to rescue Twitter’s struggling business model. The company lost nearly $1.4bn over the past two years, in stark contrast to profitable competitors, such as Meta.

If I owned Twitter stock, I would take profits from the recent rise in the Twitter share price. However, I’m not a shareholder and, for me, this is not an attractive entry point to buy Twitter shares.

The Twitter share price has been sliding since March 2021. Although Dorsey’s departure first lifted the Twitter stock price, the stock continued on its bearish trend lower after the initial euphoria. That suggests that investors ultimately decided that a change at the top will not change the company’s fortunes no matter who is in charge. Or perhaps investors were excited initially but then cooled off when they saw who the new CEO was. Agrawal is a decidedly safe pick for the new CEO of Twitter. He is a tech guy and an insider who has been with the company for 10 years. But that’s maybe not what Twitter needs. More importantly, it’s probably not what Twitter investors think it needs.

What is moving the Twitter share price?

Elliot Management, an activist investor, had been agitating for Dorsey to step down for around two years. Elliot felt that Dorsey, who also runs Square, was a part-time CEO, failing to get the best out of Twitter. After Elliot announced its stake in Twitter and started agitating for change, the Twitter stock price increased 40%. That hints that Twitter investors were happy that someone would try and shake things up at the company.

But after Twitter announced ambitious plans in February 2021 and so-called part-time CEO Dorsey remained at the helm, the stock price started to slide. Investors may have become disillusioned about anything changing, with everything staying the same. 

Little is known about Agrawal. It is probably a bit unfair to judge him so soon. However, reading the Twitter stock price action suggests that investors are at best lukewarm about the possibility the new CEO can shake up Twitter.

Where next for Twitter?

Twitter does need to change. It is a massively popular platform that has a huge influence. Yet, it has lagged rivals in growing and monetizing its users. Twitter at its heart is a micro-blogging platform. The trouble is that it’s hard to splice advertising — social media’s biggest revenue source aside from data sharing — into the basic Twitter feed. Single promoted tweets are easy to scroll past, but adding too many will ruin the user experience.

Twitter plans to get users to pay more for the service. It is introducing subscriptions to ‘super follow’ user accounts. Super followers will get exclusive content, enhanced by the decision to allow videos to run longer. The live chat listening feature ‘Spaces’ will also play into this plan, sharing longer-form content via newsletter. Twitter want to form communities around a particular interest. These types of changes should make advertising and promotions easier to place. Then there is Twitter Blue, a $3 per month Twitter account with additional features.

These are big plans that could change Twitter dramatically. Perhaps they can get lots of new users and double revenues as hoped. But, judging by the Twitter share price action, in my opinion, investors still don’t seem confident the company has the leadership to pull it off.

WASHINGTON, DC — Is Google (NASDAQ: GOOG.US) (NASDAQ: GOOGL.US) planning to buy Twitter (NYSE: TWTR.US) soon? Recent rumours suggest that it’s possible, based on reports that Twitter has hired Goldman Sachs to fend off takeover attempts.

This isn’t the first time we’ve heard about Google’s interest in Twitter. Back in 2009, Google was reportedly in late-stage negotiations to buy Twitter for $250 million. In early 2011, rumors suggested that Google, Facebook (NASDAQ: FB), and several other companies offered to buy Twitter for around $10 billion. This January, new reports claimed that Google could make an even higher offer.

Source: Pixabay

The logic behind a Twitter takeover is simple. Google’s previous social networking efforts — Orkut, Buzz, and Google+ — have been dwarfed by Facebook’s 1.39 billion monthly active users (MAUs). Facebook is capitalising on that lead with its own video-hosting platform, location-based services, payments platform, and other services. It’s tethering more third party sites and apps to its ecosystem with single sign-ons, which collect data for targeted ads. Since that growth threatens Google’s ecosystem of ads and services, it desperately needs a social solution to widen its defensive moat against Facebook.

If Google acquires Twitter, which now has a market cap of $34 billion, it would be its largest acquisition ever. But in my opinion, it’s not worth that lofty price tag. Let’s take a look at three reasons the deal would be a huge waste of money for Google.

1. It’s expensive
Twitter’s revenues more than doubled year over year to $1.4 billion in 2014. However, it reported a net loss of $645 million, up slightly from a loss of $578 million in 2013.

Last quarter, Twitter reported a net loss of $125 million, which was mostly attributed to $177 million in stock-based compensation. But surprisingly, those hefty bonuses still couldn’t prevent Twitter’s chief operating officer, chief financial officer, head of news, and head of engineering from all leaving within the past 15 months.

Twitter stock is also overvalued at current prices. Twitter trades at 24 times sales, compared to Facebook and LinkedIn‘s P/S ratios of 18 and 14. This means that Twitter could be bought at a cheaper price if fundamental gravity kicks in.

2. Stagnant user growth
Twitter’s MAU growth has slowed down considerably over the past year. Back the fourth quarter of 2013, MAUs rose 30% year over year to 241 million. But in the fourth quarter of 2014, MAUs only grew 20% to 288 million.

A recent survey by Pew Research Center also found that just 23% of American adults use Twitter, placing it in fifth place behind Facebook, LinkedIn, Pinterest, and Facebook’s Instagram, in that order.

In January, Twitter disclosed that 24 million of its users have never tweeted, meaning that they could be robots, third-party apps, or spam accounts. Moreover, there’s a huge gray market for sales of fake followers, which are created by algorithms and sold by the thousands to attention-seeking Twitter users. These problems damage Twitter’s reputation as a social network and advertising platform.

3. Google already has decent access
Twitter previously prevented Google from listing tweets in its search results. But in February, Twitter signed a deal with Google to bring tweets back to Google searches. Twitter stated that the deal would encourage new users to sign up, that it could monetize the landing pages with ads, and that it would generate additional data revenues by sending the tweets to Google.

However, the deal arguably benefited Google more than Twitter. The partnership lets Google users bypass Twitter’s revenue-generating News Feed and jump straight to the tweet. Therefore, Twitter users who regularly use Twitter’s internal search engine could start using Google to simultaneously scour tweets and other websites. Google’s search results will also be enhanced by real-time tweets, which will boost the relevance of its targeted ads.

Since that deal basically gives Google access to some of Twitter’s best features, there’s no point in buying the entire site.

Twitter’s not worth it, Google
Google’s 10 largest acquisitions in history had a combined price tag of $24.5 billion. With an acquisition premium, Twitter could cost $40 billion to $65 billion. That’s a whopping price tag for a company with no profits, high valuations, and stagnant user growth. Google certainly needs to push back against Facebook in the social media space, but buying Twitter just isn’t the answer.

WASHINGTON, DC — We could be in for the next big initial public offering. I’m not normally one to get excited by IPOs, and I thought the hype over Twitter (NYSE: TWTR.US) , Facebook (NASDAQ: FB.US) and LinkedIn in the past three years was crazy. However, GoPro has piqued my interest.

There are a few key differences between GoPro and IPOs that have dominated the market in recent years. Let’s look at why this maker of video cameras and accessories is different. 

What we know about GoPro

We know a few things about the company from management interviews and media reports. GoPro has been profitable since it was launched in 2002 and at least doubled revenue each year through 2012 to more than $500 million. The company’s last financing round involved $200 million from Hon Hai Precision Industry, a.k.a. Foxconn, and valued the company at $2.3 billion.

This is a far cry from Twitter, Facebook, and LinkedIn — tech IPOs that began with an idea and are still trying to figure out how to make money off of it. GoPro started with a product people were willing to pay money for right off the bat, which is a huge difference, in my opinion.

Potentially just as important, founder and CEO Nick Woodman still owns more than half the company, and he’s the visionary that has made GoPro what it is today. Companies with active founders generally outperform the market over the long term, and this is a key element to look for in such a young company.

GroPro makes something tangible

Recent tech IPOs have largely come from companies that don’t physically make anything, but rather depend upon users to return to their websites day after day. Twitter and Facebook are at the whims of both users and advertisers, and we know users’ tastes can change rapidly when it comes to social media.

But GoPro makes cameras and accessories that everyone from adrenaline junkies to parents use to capture life’s live-action moments. Could someone else come in and make a camera just as good as GoPro? Sure, but the company has a brand and retail presence that no competitor can match at the moment. Turning your back on GoPro is a harder switch than turning from Facebook to the next great app, which is stability I like in a company.

In short, companies that make something tangible have more staying power than digital companies that can go from cool to obsolete almost overnight.

GoPro is cool

Maybe the biggest thing GoPro has going for it is its brand.

The brand alone would allow the company to expand into new product lines: wireless microphones, photo editing and sharing software, wearable devices, or almost anything else an active person would use.

You can already see the product line expanding now that GoPro3 offers wireless capabilities, and I think we’re just scratching the surface of these products’ potential. Woodman has demonstrated the ability to build new product platforms that attract new users; that should continue if GoPro gets additional capital when it becomes a public company.

The risk for GoPro

As much as I like GoPro, there are huge risks for the company.

Unlike smartphones, sports cameras don’t have a two-year refresh cycle, so revenue may not recur as quickly as I would like. There’s also little opportunity today for recurring revenue from services or other goods. In other words, once you buy a GoPro, you may not ever need to do business with the company again.

Replacement risk is also high. Cameras have been replaced by phones once before, and there’s a possibility that the quality and functionality of another device could overtake GoPro. Google Glass, for example, is something of a competitor to GoPro.

Making money off the GoPro phenomenon

I like the fundamental business more than recent IPOs such as Twitter, Facebook, and LinkedIn. Right now, if you’re looking for a way to get some exposure to GoPro before it goes public, take a look at Ambarella (NASDAQ: AMBA.US) . The company makes GoPro’s video compression chips — a key to taking the action shots that make the camera so popular. At 24 times next year’s earnings estimates, this stock offers good exposure without the high initial price GoPro would likely command.

WASHINGTON, DC — Microblogging platform Twitter (NYSE: TWTR.US) reported its first set of quarterly results as a public company after the market’s close to the market’s great displeasure — shares were down 18% at 6:32 p.m. ET.

Source: Twitter.

The direction — and intensity — of the market’s reaction to Twitter’s results is surprising, at first glance. After all, most of the company’s numbers look good, even great, relative to Wall Street’s expectations, as the following table demonstrates:

Sources: Thomson Reuters I/B/E/S, Twitter.

The only “miss” is with regard to EBITDA in the current quarter (the third line), where Twitter’s guidance range of $10 million to $16 million fails to meet analysts’ consensus estimate of $16.6 million, but that shouldn’t be all that upsetting, considering that the company’s guidance for full-year EBITDA is well above the consensus estimate. (EBITDA, or earnings before interest, taxes, depreciation and amortization is a proxy measure for cashflow.)

As such, the after-hours stock price reaction suggests that the market’s expectations were substantially above those of Wall Street analysts. Which brings me to the first number that is causing investors to decimate Twitter’s shares: 37. That was Twitter’s enterprise value-to-EBITDA multiple as of yesterday’s market close — roughly three times Facebook‘s! The growth expectations implied in that multiple are phenomenal, and as I speculated yesterday:

“Given the 150%-plus run-up in Twitter’s stock price from its IPO, I have a hard time seeing how this afternoon’s results will satisfy market expectations (although perhaps this is a failure of imagination on my part). Investors ought to be prepared for a share price decline, one that could be significant.”

Still, there has to be more to it than that — a catalyst that planted a genuine doubt in investors’ minds regarding whether Twitter can ultimately achieve the sort of growth that would justify its valuation. Which brings us to the second number that’s contributing to the decimation of Twitter’s stock: 9 million. That’s the total number of monthly active users the company added in the fourth quarter (with just 1 million in the U.S.), or 4% growth relative to the prior quarter. Twitter now has 241 million monthly active users, which is barely a fifth of Facebook’s total. (Twitter doesn’t do investors the courtesy of disclosing daily active users — which is the key segment of the user base.)

The slowdown in user growth raises the spectre that Twitter will remain a niche product instead of achieving widespread mainstream appeal. I think that concern is valid, as Twitter is less user-friendly and its utility less obvious than Facebook’s.

Twitter’s quarterly results provide investors with a new baseline with which to revisit the stock’s valuation. Yesterday’s correction looks more than warranted — and there could be more to come; it’s an object lesson in the perils of placing a high multiple on a business that shows promise, but which remains fundamentally immature.