Twitter's results warning to Snap as it pins a $22.2bn value on its IPO

Neither Twitter, not Snap, look like they will successfully 'cross the chasm' like Facebook did five years ago

According to the overwrought hyperbole that passes for news these days, Twitter is in trouble because it has been insufficiently robust in clamping down on abuse, 'trolls' and other forms of anti-social behaviour that appear to vex a lot of people these days (more than real, physical abuse, it seems).

But it has more fundamental business problems - problems equally applicable to Snap as the picture-sharing social media network gears up for an initial public offering (IPO) that according to stories emerging today would value the loss-making company at $22.2bn.

The problem is simple: at current rates of growth, it is unlikely that it will ever reach sufficient numbers of users in order to break even, let alone post the kind of profit that justifies that kind of valuation. At the very least, there's an awful lot of expectation built-in to such a price that are thoroughly unjustified if Twitter is any guide.

And that is a problem that Snap has in spades, given the company's storage and IT infrastructure requirements and the added costs that imposes on the business.

It's not as if Twitter is an insignificant business: it pulled-in revenues of $2.53bn in 2016, which while up by a respectable 14 per cent compared to 2015 clearly demonstrated that the company's growth is reaching a plateau - one that, if it includes profits in the future, certainly doesn't justify Twitter's current $12bn market capitalisation, let alone a valuation of more-or-less twice that.

At the moment, it certainly doesn't: the company filed a loss of $457m, according to GAAP accounting standards, or $406m on a non-GAAP or 'adjusted' basis. Either way, it's not enough to justify its current market capitalisation and, with user growth in the fourth quarter up only four per cent (in terms of "average monthly active users) to 319 million it's hard to see where the company will find the growth to justify it.

And so to Snap.

The main claims to fame of the maker of the Snapchat picture-sharing tool are its abilities to add filters to pictures of ugly people and their food, and to automatically delete them after a period of time, so images of people's Friday night drunken escapades can't be so easily shared.

As observed when the company filed for IPO two weeks ago, not only is the company already reaching saturation point in terms of user growth, but its costs are high and its losses astronomical. And these are real losses based on costs that vastly out-run relatively low revenues, not accounting book losses based on the write-down of assets.

Sure, revenues are up pretty impressively, from $58.7m in 2015 to $404.5m in 2016, but that's tapping low-hanging fruit. Its net losses also increased, from $372.9m to $514.6m. Losses from operations weighed in at $520.4m. Again, that was well up on 2015.

But with 161 million daily active users, the question is by how much this number can be increased, and the scope for increasing revenues from them. With Twitter usage plateauing at around 340 million (half the number of registered users), it's fair to say that Snap probably doesn't have too much more scope for growth than this.

In other words, Snap is a business that looks, to all intents and purposes, as if the founders and its backers can see very well the way in which the financial winds blowing and, to shamelessly mix metaphors, are planning to make like shepherds and get the flock out of there while stock markets remain at all-time highs.

And the trouble with dot-coms is this: when they're small, so are their costs. But as they grow, those costs typically outgrow their revenues until they reach critical mass, whereupon revenues happily race ahead of costs.

Or, to paraphrase Geoffrey Moore, both Snap and Twitter look like businesses that aren't quite going to 'cross the chasm' that Facebook successfully crossed five or so years ago.

They may well be viable businesses, in that they can be profitable and keep thousands of people gainfully employed, but they are not businesses that should have values of $12bn or $22bn attached to them.