Friday, October 2, 2009

Twitter - a baffling valuation

Twitter is the latest in a string of stupendous valuations and acquisitions that have surrounded the Social Media boom. It would appear that valuations of YouTube, Facebook, MySpace and now Twitter are setting large Media and Internet Corporations for the DOT COM CRASH Rnd 2.

Twitter's most recent round of funding from Private Equity and Venture Capital Firms has valued the micro blogging service at approximately US$1Billion. To put this into perspective - here are some Australian companies that are worth a similar amount:

  • Pacific Brands (owner of Mossimo, Bonds, Hard Yakka, King Gee, Hush Puppies, Berlei etc etc)
  • Channel Seven
  • Sigma Pharmaceuticals

They all have a few things in common, for example..

  • A strong business model with experienced business leaders
  • Revenue Generation
  • A meaningful product that is useful.. and people/companies are willing to pay for..
Compare this to Twitter:

  • A business model that is vague at best with two co-founders that are very uncertain on the direction of the company
  • Almost non existent Revenue Generation
  • A product that has minimal 'use' outside of a peculiar cyber world where people feel the need to document their every move..

In February of this year, Twitter was valued at US$255million. Meaning that in just 6 months there has been growth in value of 584.3%. In the same space of time, the company has increased users by 1,334% (Nielson.com) - but still has not made any where near enough money to cover the costs of running the business.

A leaked internal document from Twitter stated that quarter four of 2009 (this quarter) was supposed to generate $4million in revenue, and 1 year from now, Twitter is projecting $54million for the 4th quarter. The two co-founders are yet to disclose exactly how this is going to occur. Instead they continue to flood investors and the market with Twitter hype, saying that they intend for Twitter to be the "pulse of the planet."

It would be wise to take a look at Google's acquisition of YouTube.com and E-Bay's acquisition of Skype and look at how they have progressed. Both are currently in loss making positions and are struggling to develop models for successful revenue generation.

Be very aware of the hype - and have a look at the numbers.

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