Is Twitter actually profitable? Yeah, nah...

Twitter released some surprisingly good financial results today. The stock is up by abut 30% in after-hours trading. Media reports are saying that Twitter has earnings of 2 cents per share. In the small print, they talk about this being the non-GAAP (make-believe) profit and also mention that the GAAP (real) profit was actually a loss of 24 cents per share. 

GAAP stands for Generally Accepted Accounting Principles: anything else is misleading. Twitter seems to have included all their expenses, except the biggest one.

The main item missed from the non-GAAP profit in the case of Twitter was the "stock-based compensation expense". That means employee stock options. There is no cash cost for the company but it is essentially a transfer (of $158M) from stockholders to employees.

I'm aware that stock-options are a common and cheap way of paying employees, especially in a growing tech company. However, since 2005, it has been necessary to treat employee stock options as expenses. The non-GAAP profit has no place in these earnings figures.