It’s the secret sauce of internet valuations. Revenue and earnings are forgiven if you can show growth in users. Whether that makes sense, of course, is another matter.
So get out the old hockey stick curve for those presentations, much better yet, grow your user base rapidly before trying to raise VC funding, as this article from The New York Times makes clear:
Twitter’s Troubles and Snap’s Appeal: It’s All About the Mojo
The company’s fundamental problem is that it is struggling in user growth.
Revenue growth may be on track, increasing about 20 percent in the quarter ending June 30 over the same period of last year, but it is the user growth numbers that have put Twitter into the loser category.
When Twitter went public in 2013, and its stock price shot to over $60, it had far fewer users and a third as much revenue. But back then, Twitter had user growth of 39 percent year over year. And with that growth, all other sins were overlooked.
Snap has the youth market, which advertisers covet. Revenue is low, at about $376 million, according to Bloomberg, but is projected to grow fourfold by 2018. Profits appear nonexistent, but as usual, who cares?
The intense focus and pressure for growth in B2C companies, and more specifically for social media companies, leads me to advise entrepreneurs to consider B2B ventures, where the cost of customer acquisition may well be significantly lower and the momentum and fundability are more about the quality of enterprise customers and the level of engagement of end users.