This is what happens when you continually base valuations on number of users, rather than, say, revenue, or profitability. Yes, a user base can be an indicator of a company with traction - but if there's no revenue, or no functioning model which will lead to revenue... the value is entirely hypothetical, and based on weak foundations.
I expect to see a lot more of this sort of thing, which will culminate in the current bubble conclusively popping. It'll only take a few more S&P announcements like this to cause a panic sell-off, at which point... let's party like it's 1999.
Twitter's valuation isn't based on users - the stock is down ~35% this year despite user growth being 22% and revenue more than doubling.
The stock is being trashed because they missed earnings.
The S&P report itself said Twitter is experiencing very strong growth and little competitive pressure. It was downgraded because Twitter are investing their cash rather than hoarding it. Bond holders want companies to hold cash. What is good for bond holders is usually different to what is good for stock holders.
The long case on Twitter is that the fundamentals are good, the company is growing like crazy and that the market is undervaluing based on earnings which mostly missed because of one-off employee option and other writedowns as well as reinvestment.
> The long case on Twitter is that the fundamentals are good.
I'm not sure I agree with that statement. They've got a lot of users, many of which love the service, but as a business the fundamentals are far from sound. I'm yet to be convinced that paid advertising is a model that will work on Twitter, and I can't really see any other model beyond persuading people to pay to hide the adverts (which destroys their advertiser base).
Twitter started as a hobby side project to communicate between a few friends, not a business, and you can see that in everything they do.
Well it is also the difference between bonds and equities. You might value a company on users if you think it could monetise them down the line for equities as you will share in that.
Bonds however just rely on the company having cashflow to pay the interest and then repay the capital. Number of users, future profit etc are much less meaningful compared to whether you will get your money back as promised.
It's not hypothetical. Twitter has significant revenue. When revenue is generated from eyeballs (ads), then yes, number of users and engagement is a valuable metric (yet not the only one).
I expect to see a lot more of this sort of thing, which will culminate in the current bubble conclusively popping. It'll only take a few more S&P announcements like this to cause a panic sell-off, at which point... let's party like it's 1999.