Life's transitions, from single to married, from renter to homeowner, and from employed to retired, just to name a few, are never easy, since the rules change, as do the measures of success and failure and that is perhaps the reason that they are accompanied by ceremonies (weddings, housewarming, retirement parties). The life of a business is also full of transitions, and not only are they just as difficult for investors, traders and managers, but they often occur without ceremony, and can go unnoticed. In the last three years, social media companies have claimed center place in market conversations, first when they went public at prices that old-time value investors found inconceivable, and then as their ups and downs became part of market lore.
In the last few weeks, we have seen this fascination with social media companies play out again, first in the market reaction to Mark Zuckerberg's post earnings statements about Facebook's future investment needs and then in Twitter’s struggles to reclaim its narrative at its analyst meeting last week. I get a sense that we are on the cusp of a transition, where the time for pure story telling (and its metrics) is ending and more traditional metrics (revenues, profitability) will come to the fore. That does not presage, as some are suggesting, the end of the social media party and a collapse of social media market capitalizations, but it does mean that investors, traders and managers have to recalibrate to a different game, where they will be judged not on pure sector momentum but on their capacity to cull winners from losers and find the right metrics for making those judgments.