Still think there’s not a Web 2.0 bubble going on?
The Wall Street Journal reports tonight that Twitter is now valued at between $8 billion and $10 billion. Twitter is the massively popular communication network that doesn’t have a business model, loses money, and has almost no revenue
The Journal reports Twitter had $45 million of revenue last year. A quick bit of math tells us a $10 billion valuation would mean the company, which will be five years old next month, is priced at 222 times sales.
And I thought The Huffington Post was overvalued at ten times sales.
One more bubble point: That $10 billion would also be going on three times what Twitter was valued at its last capital raise—two months ago.
In December, when it got $200 million in new venture capital, Twitter was valued at $3.7 billion.
But Twitter’s aiming high:
People familiar with the situation said the company believes it can grow into a $100 billion company.
With this market, they might get there by summertime—business model be damned.
— Further Reading:
The Groupon Bubble. NYT reports Wall Street pitching a $15 billion to $20 billion debut
Google is at a disadvantage here - it desperately wants to break into the social networking space, but had had problems at every turn - privacy issues, failed products, etc. Worse, it has to bid real money - stock with an established market value or cash - to try to acquire a company like Twitter while Facebook can bid up the price with play money - acquisition via Facebook "stock" which (like Twitter's) is "valued" based upon non-market factors and "potential".
Google demonstrated with Groupon that it would overpay - grossly overpay - for a business that it believed could be leveraged into a much larger opportunity. It's the lesson of YouTube - it may be difficult to make money, but the first brand that "everybody knows" can hold tremendous advantage in the marketplace. Google offered a superior product to YouTube at the time of that acquisition, but few used it.
So it's Google willing to spend way too much for a company in order to try to break into a space in which it has repeatedly stumbled, versus Facebook being willing to "spend" its stock or VC money in order to acquire a property that could turn into a serious competitor - whether standing alone or, particularly, if taken over by Google.
It's not just that everybody is justifying these valuations based upon "potential" - they're justifying excessive valuations on that basis (e.g., the $3.7 billion Twitter valuation from December) and then applying multiples. Google has the cash to play this game; I do wonder, though, if Facebook will be able to continue once it goes public and its stock settles on a number that may be much lower than its presently hyped valuation. All the more reason to make acquisitions now when they can still spend play money - i.e., their stock at whatever inflated value people are using today.
If I were selling I would definitely want to have Google and Facebook get into a bidding war for my company, but at the end of the day I think I would take a check from Google (or stock I could turn around and sell) over stock from Facebook. I'll grant, it would be fun to imagine my Facebook stock going through the roof - a $trillion valuation on the date of the IPO - but a bird in hand.... I would also want to sell while the selling is good - and I don't expect that the bidding wars will continue in quite the same manner after Facebook's IPO.
#1 Posted by Aaron, CJR on Thu 10 Feb 2011 at 10:49 AM
Transport you for added raring article. Where else could anyone get that benign of message in untold a perfect way of output? I get a manifestation close week, and I am on the see for such acceptance.
Funny Quotes
#2 Posted by aenadse, CJR on Fri 16 Sep 2011 at 01:29 PM