What's Holding Twitter Back?

Twitter  (NYSE: TWTR  ) is still operating well in the red. So far this year, Twitter has generated $133 million in red ink. Naturally, investors want to know if or when Twitter will be able to reach profitability.

Twitter's cost structure includes a high level of fixed costs, since its primary cost of revenue is the construction, maintenance, and operation of data centers. Companies with high levels of fixed costs tend to have operating leverage and become more profitable as revenue ramps up. This is precisely what's happened for Twitter; its gross margin was 42% in 2011 and so far this year has been 64%.

Further down the income statement, Twitter's hefty operating expenses are holding it back from current profitability. The company has been spending an awful lot on R&D and sales expenses as it invests in its future. Twitter is hoping to continue international expansion, where it will need to build up local sales teams.

In this segment of Tech Teardown, Erin Kennedy discusses Twitter's profitability with Evan Niu, CFA, our tech and telecom bureau chief. 

Got iPad?
Apple
's newest iPad Mini with Retina display might be hard to come by this quarter, given all the reports of supply constraints. Well, we're going to be sure to get a few -- and give them away! That's right: For the first time ever, The Motley Fool is hosting a contest where you can win a free iPad Mini with Retina display. All you have to do is tell us why you love The Motley Fool by clicking here! We'll pick the three most Foolish submissions to receive a free iPad Mini with Retina display.

See full terms and conditions by clicking here


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2719299, ~/Articles/ArticleHandler.aspx, 12/22/2014 10:13:22 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement