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Emerging Moats: Some Thoughts

June 30, 2015

Compare two of the largest sources of news in the world today – New York Times (NYT) and Twitter. The former has market capitalization of US$ 2.3 billion, and the latter is 10-times bigger at US$ 23 billion.

This is despite that, in 2014, NYT earned US$ 1.6 billion in sales while Twitter earned lesser at US$ 1.4 billion. What is more, the former ended with a net profit of US$ 33 million, while the latter closed with a net loss of US$ 575 million.

So, what explains the huge premium that smaller-sized, loss-making Twitter commands over the long-standing and profitable NYT?

The answer is cash flows.

Now, this seems bizarre at first because NYT is profitable and has a history of generating positive cash flows, while Twitter remains loss making and continues to burn a lot of cash year after year.

But then, go back to security analysis text books, and a great business is defined by its ability to generate cash flows in the future.

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