WASHINGTON Nov 6 U.S. securities regulators are
concerned that some metrics of growth used by technology
companies are confusing investors, and may not translate into
big profits, Securities and Exchange Commission Chair Mary Jo
White said Wednesday.
"Consider a company that correctly claims it has a hundred
million users, and that the rate of user growth is expected to
continue to grow at double-digit rates. That certainly sounds
good and it would seem to bode well for the prospects of the
company," White said at a New York conference sponsored by the
Practising Law Institute.
"But what if only a fraction of those users are paying
customers? What does that mean for future financial results?"
White was careful in her speech not to name any specific
But her comments comes one day before shares of the hotly
anticipated microblogging company Twitter Inc will
begin trading on the New York Stock Exchange.
Twitter is the most closely watched initial public offering
since Facebook Inc, which went public last year.
On Monday, Twitter raised the top end of its price range by
25 percent amid strong demand from investors.
But questions remain about how Twitter and other social
media companies can turn a profit.
To date, Twitter has not made a profit, but it has amassed
230 million users over the course of seven years.
Some analysts have said they are concerned about whether the
company relies too heavily on advertising revenue and whether it
has enough other sources of income.
Facebook has faced similar questions by investors and
analysts. Late last month, the company posted strong growth in
its mobile advertising business, but investors grew concerned
after the company said it had no plans to boost the frequency of
ads it shows to users.
Revenue from mobile ads represented 49 percent of Facebook's
total advertising revenue in the third quarter.
White said staff in the SEC's Division of Corporation
Finance has been scrutinizing the "unique financial or
operational metrics" that are used by technology companies.
The division is responsible for reviewing financial
reporting results and other disclosures of public companies to
ensure they are adequate for investors to make informed
"Our staff's concern has been the impact on investors of the
sheer magnitude of some of these metrics - investors for whom
the true meaning of the metric (or more importantly the link
from metric to income and eventual profitability) may not be
clear or even identified," she said.
"In the absence of a clear description, it can be hard not
to think that these big numbers will inevitably translate into
big profits for the company. But the connection may not
necessarily be there."