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The market's rousing response on Twitter's first day of public trading shows once again that no amount of hard-nosed analysis can keep the thundering herd from chasing the latest hot tech stock. But the world's top securities watchdog did her best this week to temper some of the exuberance with a timely warning.

Tech players can toss around lots of big numbers about users, audiences, game players and the like, but even rapid growth in these figures may signal nothing about a company's financial health or prospects for profitability, says Mary Jo White, head of the U.S. Securities and Exchange Commission. At worst, they can steer people to a far rosier view of a company than its actual fundamentals merit.

"[A] number of technology companies have relied on unique financial or operational metrics to illustrate the size and growth of their businesses," Ms. White told the Securities Regulation Institute annual conference in New York this week. "These metrics track numbers important to the company that often reflect their very fast pace of growth – like the number of users of the service, the number of players of an online game or the number of people who 'liked' the company or something the company does. And these metrics usually total in the millions."

The former federal prosecutor whose turf included Wall Street then underscored the potential problems for starry-eyed investors: "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. 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."

Which leads us to the doorstep of Twitter, another sexy social networking platform with plenty of revenue but no profits. The micro-blogging business had 231.7 million users a month at the end of the third quarter, up 6.1 per cent from the previous quarter. But this was a narrower gain than in previous quarters. The United States, by far Twitter's biggest market, accounted for 52.7 million of the total, up 7.1 per cent, along with the lion's share of its ad revenue, which is expanding at a rapid clip. Yet losses have also widened, at least for the first half of the year. That marks six and a half years of unprofitability and counting – not uncommon in tech land, but a definite warning light for investors concerned about unrealistic valuations.

By the end of its first day of trading in the public arena, Twitter was being valued at slightly better than 22 times estimated sales for 2014, nearly double the level for Facebook, which has millions more users and a more diverse revenue stream.

The bursting of the dot-com bubble in 2000 was so devastating for money managers and individual investors overexposed to technology that it should have acted as a deterrent to overblown expectations. Before Facebook went public exactly a year ago, this had largely proved to be the case. And the social media player's nearly immediate face-plant showed that companies can no longer count on a continuous runup in share prices based on their own lofty promises and investors' desires to catch the next big thing. As with Facebook, most analysts tracking Twitter today are nothing like the compromised tub-thumpers of the dot-com era whose main role was to help their firms peddle more shares.

They will ignore the hype and the unhelpful metrics and focus on traditional signposts like cash flow, revenue growth, burn rates and acquisition costs. And so should everyone else.

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