May 4, 2016 · 6 minutes

Twitter really did not need another problem this week.

Its earnings last week showed things were even worse than Twitter bears like me expected. Not only is video still very much unproven as the “future,” but video growth is starting to cannibalize Twitter’s existed branded advertising. That was the one thing it was doing well! The one product distinct from its competitors!

Twitter tried to chalk it up to the market, suggested that others would likely announce poor digital ad sales. And then Facebook reported the next day, blowing everyone out of the water, and dropping the mic with a new share structure to give Mark Zuckerberg even more control. Because why not? Comparing Facebook to the rest of the Web 2.0 landscape and the rest of tech this quarter, he’s earned it.

As it trudges through another quarter, Twitter’s stock again hit an all time low Tuesday, before a surprise pop today. Its market cap is hovering around $10 billion. Even the most incredulous of tech bloggers are no longer pretending this company is acquisition bait. Even my Hail Mary suggestion of merging with Yahoo is well off the table.

And its latest incremental “fix” to the product-- once again recommending who you should follow-- was roundly mocked by the techies still loyal to the platform.

Apparently Facebook wasn’t done fucking with Twitter. And Amazon is joining in too. Both companies have decided that finally they will cave to shareholder pressure and report stock compensation as a real expense, in accordance with GAAP accounting. This, after more than a decade of insisting it should not be accounted this way.

Because-- yunno-- these are two companies with a history of caving to shareholder pressure.

Yep. And the only two companies who had a great quarter. Sure the change will make their numbers worse. But if they pressure others to follow suit, what’s bad for Facebook and Amazon will be cataclysmic for others. Principally, Twitter.

From Bloomberg’s write up:

The change also highlights the struggles of smaller Internet companies like Twitter Inc. and LinkedIn Corp. to generate GAAP earnings. Facebook, Amazon and Alphabet may have high stock valuations, but they are also very profitable by GAAP and non-GAAP measures. Twitter shares trade at about 36 times estimated profit, but including stock-based compensation analysts expect it to have a loss over the next 12 months, Bernstein research shows.

“If you can act from a position of strength, which Amazon and Facebook clearly are, there’s no better time to change your behavior,” said Denny Fish, who helps oversee $2.5 billion in technology stocks at Janus Capital Group Inc. “They look more responsible and it makes them accountable for how they issue stock for compensation in the future.” 

Bloomberg added later, “Twitter reported 2015 non-GAAP profit of $277 million, or 40 cents a share. On a GAAP basis, including stock-based compensation, the company posted a loss of $521 million, or 79 cents.”

Seriously, Mark Zuckerberg? Seriously, Jeff Bezos?

But Bloomberg’s report only focused on the existing troubled public companies. What about the 150 or so unicorns with mounting pressure to file? Think those option tables are any cleaner given the last few years of talent wars among them? Remember, this is an era where the solution to the problem has universally been: Throw money at it. And the reason startups have justified those sky-high valuations no matter the dirty term sheets needed to get there? Because they need that stock to recruit.

It was already one of the worst starts to the year for IPOs on record.

And then during first quarter earnings, Apple, Alphabet and others got the shit kicked out of them by investors. If investors are pissed at Apple and Alphabet, they aren’t gonna like Dropbox or Honest’s numbers.

And now, if they are going to report like the market leaders, their numbers just got way worse.

Seriously, Mark Zuckerberg? Seriously, Jeff Bezos?

This move highlights how the game is changing for the unicorns, even the most elite of them, days after the venture capitalist chorus of “no seriously, these companies we funded at these prices are fucked…” has grown even louder.

Greylock’s Simon Rothman has followed up a blog post describing how Uber used cash as steroids boldly titled “Why Uber won,” with one that argues, maybe, Uber won the first match. And Uber-- along with much less fortunate decacorns and unicorns-- is now entering a very different field of play. From the piece:

Going forward, the same tactics simply will not work. Access to capital will not be as readily available, and thus, companies will need to rely on creativity more than cash. So, while Uber may be leading, the battle is not necessarily over. Ridesharing in the US isn’t a winner-take-all market. It’s now a duopoly in most countries, including the US, where smart strategic moves or unforced errors could change the balance of power. Weaponizing money may have been effective in this competitive battle, but could have long term consequences — it’s far from “free”. 

He continues, describing the “detox” that Uber specifically will now go through:

Withdrawal Symptoms. We are entering a new capital constrained environment that will impact mid to late stage companies. Uber has used money as a performance enhancing drug for years. And it’s now addicted to money. Something will have to change because a company’s ability to spend money tends to exceed its ability to raise money. Uber will have to start making a bottom line profit soon or begin to ween itself off of money as a drug. If not there may be some serious withdrawal symptoms — decelerating growth rate and weakening SLAs.

Atrophied Skills. The other challenge with money is that when a company has money it fixes all its problems with money. The skills a company should develop around creative problems solving typically emerge from need not want. The question for cash rich companies is what happens when they stop relying on money to fix everything...

...It will continue to be a heated battle and worth watching. Regardless of how it turns out it’s business history in the making. 

A heated battle? Between Uber and Lyft? We don’t even think that exists, and we’re the resident Uber skeptics. That’s quite a reversal as a follow up from a blog post entitled “Why Uber Won.”

Listen carefully. Day by day, the Valley is increasingly growing less bullish on the highest valued private company in Silicon Valley history.

Let’s add to Uber investor’s Bill Gurley’s open letter to unnamed companies who’ve raised too much money, another VC saying -- specifically to Uber-- the cash is running out and you will have to change. As we’ve detailed, Uber already had to tap sketchy Russian oligarchs for its last funding round over traditional late stage sources of capital. (The exact kind of deal that Gurley argued was a red flag, no matter how high quality previous investors in a company may be.)

If these investors are right, watch for one of two things to happen. Option one is Uber needs to give up on its international markets that aren’t working and are wasting billions of dollars, the same way it has already given up delivering “tuna sandwiches out of a Buick.” (We’ve detailed Uber’s struggles in China and Europe at length. News today? Even Uber-sympathizers TechCrunch cite new data that Uber is “trailing far behind” Ola in India. Taken together these three losing markets represent more than $2 billion in annual burn for Uber.) Option two is Uber may be forced to go public before it’d like.

And if that’s the lesser of two evils, Zuckerberg and Bezos just made Uber’s numbers look a whole lot shittier. And just as what’s bad for Facebook and Amazon is cataclysmic for Twitter in the public markets, what’s bad for Uber among private companies is horrific for the rest of the unicorns.