$0 Profits Couldn't Hold Back This Year's Tech Darlings : All Tech Considered In Silicon Valley, zero profit and even zero revenue don't make a company a loser. Tech companies like Snapchat and Twitter, which have not yet turned any profit, can be worth billions of dollars based on future potential alone.


This ALL THINGS CONSIDERED, from NPR News. I'm Robert Siegel.


I'm Audie Cornish, and it's time now for All Tech Considered.


CORNISH: We kick things off today with the latest entry in our series Number of the Year, where we use numbers to tell the biggest stories of 2013. And today, we're talking about zip, zilch, nada; also known as zero. Here's NPR's tech correspondent Steve Henn.

STEVE HENN, BYLINE: If you cover computer technology, and you're doing a story on the Number of the Year, you really just have two choices: zero or one. And I'm picking zero. Zero is the total amount of revenue created by Snapchat in 2013. Zero is the total profit collected by Twitter. And zero is roughly how much Apple's stock price has increased from early December of last year through December of this year. Which kind of makes you wonder, with all these zeros piling up, how are so many people in Silicon Valley making so much money from technology?

JIM JUBAK: Well, I mean, it gets complicated.

HENN: Jim Jubak is a portfolio manager at Jubak Global Equity. He's invested in Apple and other tech companies in the past.

JUBAK: It's all very, very future-oriented. It's like, OK, so where are we going to be in a year?

HENN: When it comes to valuing a technology company, profits and even revenue often matter less than what analysts or investors predict about the future. Is the company growing? How fast?

So let's start with Snapchat, the baby of my little group. This company is just a few years old, and it lets you send pictures to friends that disappear. Snapchat has become widely popular. But it has...

ANANT SUNDARAM: No revenues, as far as I know. (Laughter)

HENN: That's Anant Sundaram. He's a corporate valuation expert at Dartmouth's Tuck School of Business. And what has given him the giggles is the fact that Snapchat is attracting takeover offers in the billions.

SUNDARAM: If the rumors are to be believed, apparently there was a $3 billion bid from Facebook for the company, and a $4 billion bid from Google for the company. And - yeah.

HENN: Just to be clear, when Anant Sundaram says Snapchat has no revenue, that means no one pays the company any money for anything. So I ask, what would it take for that type of valuation to make sense?

SUNDARAM: (Pause) Um...

HENN: Or is that impossible?

SUNDARAM: It would...

HENN: You seem stumped.

SUNDARAM: I - I - the reason I am hesitating in replying, Steve, is I cannot think of any possible scenario under which this kind of a valuation makes sense. And as I said, all I can do is scratch my head.

HENN: Snapchat didn't respond to a request for comment. But it's not like Anant Sundaram is a Luddite or some kind of technology skeptic. Just a few years ago, he was widely mocked for arguing Twitter was worth more than a billion dollars. And still, what's going on with startups - like Snapchat - today leaves him speechless. Jim Juback, however, sees an explanation: Facebook's fear.

JUBAK: This is a relatively good investment because, you know, you're talking about a few billion dollars to make sure that your company doesn't get blindsided.

HENN: If you're a Facebook, nothing could hurt you more than a social media startup that has the potential to knock you off your pedestal.

JUBAK: In those terms, it makes sense.

HENN: But Facebook's free-spending ways have helped create an investment bubble in Silicon Valley, according to Sundaram.

SUNDARAM: Any valuation bets are off, frankly.

HENN: Take Twitter. That company has never recorded a profit; expects revenue of roughly $600 million this year. But last week, it was briefly valued at more than $40 billion.

SUNDARAM: We are talking about, you know, a price that's a substantial overvaluation, relative to fundamentals. And what drives that - who knows? It's psychology, fads, sentiments; the list goes on.

HENN: Sundaram says this is a classic bubble, one which may be popping as I speak. So I asked Jim Jubak to peer into his crystal ball, and predict where this investment frenzy is headed.

JUBAK: It's an Apple crystal ball, by the way.


JUBAK: It is their next product. We're doing advanced testing.


HENN: The truth is, even an imaginary Apple crystal ball can't predict the future. And when investment predictions are driven by fortune tellers, they typically fail to make much sense. Just ask Apple itself. That company is on track to bring in more than $170 billion in revenue this year. It stands to earn $37 billion in profit - and its stock price is flat or falling.

Steve Henn, NPR News, Silicon Valley.

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