THE $10bn price tag for Twitter puts its valuation at 222 times revenue, using estimated figures for 2010. Even if the site comes good on projections that ad income will hit $250m in 2012, the multiple is still 40 times revenue – a fancy amount for a business that is yet to turn a profit.
A potential buyer will need more than that if it’s going to put this much cash on the table. And Twitter can learn from its suitors how best to approach the next phase of its growth. Facebook’s advertising revenue hit $1.86bn last year, and the site accounted for five per cent of all online advertising in 2010. With other income streams bringing the total to around $2bn, a $50bn valuation is a little less ridiculous (albeit still extreme) when compared to the Twitter figures.
Twitter is nearly ten years younger than Google, two years behind Facebook, and still has a lot to prove. It is used by just 12 per cent of internet users, compared to Facebook’s 62 per cent.
If it were to pursue a listing, Google’s example would be one to avoid – during its Dutch Auction initial public offering, a series of filing errors and press reports saw the price of its stock drop from around $115 per share to officially start at $85 per share.