News Column

How Much Is Twitter's IPO Worth?

September 13, 2013

Juliette Garside, theguardian.com

twitter

With what looks like impeccable timing, Twitter has made its first step towards an initial public offering. The company's revenues are growing at a pace, and painful memories of Facebook's stockmarket debut are fading, with the social network finally worth more than its $104bn (£66bn) float price.

Should Twitter come to market at the end of this year, as predicted, its valuation will be nowhere near that claimed by Facebook. But what could the world's busiest grapevine be worth?

As much as $15bn, according to PrivCo, which gathers information on private companies.

"Twitter will learn from Facebook's flawed playbook and do the opposite," PrivCo's chief executive, Sam Hamadeh, has predicted. "Unlike Facebook, which waited too long to IPO (until its growth rate decelerated), Twitter will IPO at just the right inflection point: while revenue grows in triple digits."

Companies are usually valued according to their underlying profit, but it is likely that Twitter is still loss-making as the company invests to grow. Because it has filed for a confidential initial public offering, financial details remain hidden for the time being.

So the easiest measure to use is revenues. PrivCo believes the float will be "conservatively priced" at 20 to 30 times revenue. With 2013 revenues expected to exceed $500m, this would make Twitter worth between $10bn and $15bn.

But these numbers are not particularly conservative when compared to Facebook and the $23bn valuation placed on Google at its IPO in 2004.

Facebook's $104bn float valuation may have caused eyes to water, but the company was profitable and the price was around 20 times its $5bn revenues for 2012.

The year of its IPO, Google earned roughly $400m, on revenues of $3.2bn. Its initial valuation was therefore just seven times revenues.

However, Twitter's early forays into advertising have been a success, particularly on the increasingly important small screen of the smartphone, where much of its traffic comes from.

"Twitter is still tiny," said Jon Steinberg, president of social media news site Buzzfeed, on CNBC. "I think there's a lot of growth."

Research firm eMarketer says Twitter's revenues have nearly doubled to $583m since last year, and will reach $950m in 2014.

With its 200m users sending an average of two tweets a day, Twitter may not have Facebook's scale but those who are on the platform use it intensely. And the heady mix of politicians, business leaders, celebrities and journalists who dominate the site make it an important destination for advertisers seeking to influence the influencers.

In digital advertising, Google and Facebook still dominate – the search engine has a 33% share of global spending, says eMarketer, while the social network is in second place with 5%. Twitter ranks eighth with less than half a percent.

Narrow the focus to pure mobile advertising and Twitter shouts louder. It commands a 2% share and is in fourth place, battling against others like AOL and Yahoo. But there is some way to go to catch up with Facebook's 16% mobile share and Google's 53%.

On the secondary market, Twitter shares have been priced at $26 for small lots and $28 for larger lots, valuing the whole at around $14bn – about 14 times next year's estimated earnings.

A fund run by private equity house BlackRock put $80m into Twitter at the start of 2013 in a deal that implied the business was worth over $9bn. BlackRock will be hoping to cash out for considerably more.

When Google floated, demand for technology stocks was weak, with investors burned during the dotcom years still wary of hype. The search group actually had to lower its offer price from $135 to $85 a share days before the float. But a day later the shares had popped, reaching $100.

Facebook took a very different path to market, with overwhelming demand from smaller investors allowing early, wealthy backers to cash out at a high price. The so-called mom and pop investors who bought in May 2012 have had a rocky ride, watching the shares halve in value before recovering this summer.

Twitter's chief executive, Dick Costolo, would be wise to opt for a Google pop rather than risk a Facebook-style flop.

(c) 2013 Guardian Newspapers Limited.

Original headline: Twitter IPO: how much is it worth?


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Source: (c) 2013 Guardian Newspapers Limited.


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