Why Twitter Is A Bad Investment, Part II

In my last post, I briefly explained why Twitter stock isn't a good investment.

Any business that hasn't turned a profit after eight years isn't doing something right.

I want to 'drill down' into the details of Twitter's financial statements and reveal more disturbing trends. Let's start with the income statement.

In 2011, Twitter posted a net operating loss of $127 million.... in 2012, a net loss of $77 million... and in 2013, a whopping net loss of more than $635 million on their core business of tweeting, re-tweeting and ad sales.

Now let's go to the Statement of Cash Flows - more interesting numbers here.

In 2011 they had a negative cash flow from Operating Activities of almost $71 million... negative cash flows from Investing Activities of $324 million... and had positive cash flow from Financing Activities of $480 million, all of it from the sale of Twitter stock. All of this totaled up to an increase in cash flow of $84 million.

For 2012 Twitter showed negative cash flows from Operating Activities of almost $28 million... positive cash flow from Investing Activities of over $49 million... negative cash flow from Investing Activities of $37 million... overall negative cash flow of about $15 million.

So far, so good for these two years. Then the results for 2013 get really interesting.

Adding back non-cash Depreciation Expenses and "Adjustments to Net Income" wiped out the operating loss and resulted in positive Operating cash flow of almost $1.4 million. Investing Activities weren't as good... they lost $1.175 billion on this category. However, the sale of over $2 billion of Twitter stock saved their financial bacon for the year, and gave them an increase in cash of more than $637 million for 2013.

Two questions come to mind after seeing these financial results:

1) What kind of "investments" are Biz Stone and his Twitteristas putting money into and getting disastrous results?

2) How long will it be before enough investors of Twitter stock wake up and realize the core business model sucks... and they can't rely on enough greater fools buying into the Twitter story?

If you want to buy this stock and speculate in the short-term, go right ahead.

Just realize that after eight years, Twitter only has a good-sounding story and enough Kool-Aid drinkers who believe that Social Media is the magic marketing elixir for whatever ails any business.

Good business and stock stories are a dime-a-dozen, very few of those stories pan out.

Unless Twitter figures out their business model and how to turn a profit, this company's stock will eventually hit it's long-term target price of zero.