It fails when the metrics obscure fundamental problems with the business model which will lead to the metrics cratering later.
The most obvious example in recent memory is Groupon. They had insane metrics, huge revenue growth, and lots of adoption. The problem is that their value proposition was based on companies selling at a loss, treating it as a marketing expense, and then making it up in repeat business later. Many companies bought into that proposition at first, tried it, but then the repeat business failed to materialize, and they vowed never to go near Groupon again. When Groupon exhausted their initial market, sales collapsed. Groupon may survive based on the smaller market of companies where their value proposition holds, but they aren't going to meet initial investors' expectations.
An older example would be online retailers like Webvan and Kosmo.com that sold below cost, hoping to make it up in volumes. Here the problem is that the investors were looking at the wrong metric; the stocks climbed to astronomical heights based on userbase and revenue, but the key metric for a retailer is operating margin, and this was negative for these companies.
The most obvious example in recent memory is Groupon. They had insane metrics, huge revenue growth, and lots of adoption. The problem is that their value proposition was based on companies selling at a loss, treating it as a marketing expense, and then making it up in repeat business later. Many companies bought into that proposition at first, tried it, but then the repeat business failed to materialize, and they vowed never to go near Groupon again. When Groupon exhausted their initial market, sales collapsed. Groupon may survive based on the smaller market of companies where their value proposition holds, but they aren't going to meet initial investors' expectations.
An older example would be online retailers like Webvan and Kosmo.com that sold below cost, hoping to make it up in volumes. Here the problem is that the investors were looking at the wrong metric; the stocks climbed to astronomical heights based on userbase and revenue, but the key metric for a retailer is operating margin, and this was negative for these companies.