Markets

Social Media Bubble Grows as Twitter Valuation Doubles in 2 Months

February 10, 2011

3 minute read

The WSJ reports fast growing but revenue sparse Twitter has jumped from a valuation of $3.7B to potentially $8-$10B in just under 2 months. (maybe this is due to Howard Stern joining - after all he is essentially the entire valuation of Sirius) I love liquidity tsunami's. Better buy in quick, because if it's $10B today, certainly it will be $30B by the time QE3 starts.

For $45M in revenue - we are now talking 200x+ price to 2010 sales. Even on 2011 projected revenue we're talking 80 to 100x sales. This is reaching insane frenzy levels - again a good technology buyout is along the lines of 6-7x sales. "Special" companies are generally around 10-12x.

As Internet valuations climb and bankers and would-be buyers circle Silicon Valley in an increasingly frothy tech market, many eyes are on one particularly desirable, if still enigmatic, target: Twitter. Discussions with at least some potential suitors have produced an estimated valuation of $8 billion to $10 billion.
Executives at both Facebook Inc. and Google Inc., among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service, according to people familiar with the matter. The talks have so far gone nowhere, these people say.
But what's remarkable is the money that people familiar with the matter say frames the discussions with at least some potential suitors: an estimated valuation in the neighborhood of $8 billion to $10 billion. This for a company that, people familiar with the matter said, had 2010 revenue of $45 million—but lost money as it spent on hiring and data centers—and estimates its revenue this year at between $100 million and $110 million.
Twitter, which started selling ads last spring against its business of allowing users to send messages of no more than 140 characters, is just one of many tech targets being batted about as valuations climb. In December, when it got $200 million in new venture capital, Twitter was valued at $3.7 billion.
"Are these prices justifiable based on financial multiples? No," said Ethan Kurzweil of venture capital firm Bessemer Venture Partners. But these start-ups are building social services and have lots of data about their users and "the market is valuing that mightily right now." (the same logic we heard in 1999)

Both Google and Facebook have discussed buying Twitter in the past and have kept their lines of communication open, people familiar with the matter said. One of these people said companies including Facebook and Google have expressed "latent interest" in an acquisition.
Twitter's revenues and valuation have risen even as the company continues to work on ways to translate its more than 200 million registered users into a profitable business. Twitter, which was created in 2006, introduced advertising into its service last year.
One of the new Twitter ad services, called Promoted Trends, has been selling out its inventory every day, said one person familiar with the matter. The other two ad products, Promoted Tweets and Promoted Accounts, are also doing brisk business, this person said.
"The company is having great ad-sales momentum right now, but we still think they need to do something big to increase usage and get more people seeing and interacting with tweets," said Debra Aho Williamson, an eMarketer analyst. "Most of their advertisers are just experimenting at this point; the challenge will be to get those advertisers to come back and buy more," she said.