It has been talked about for quite some time now, but now the “rumorcame true: Thursday, October 3, the details of Twitter's IPO were made public.
The IPO is expected for the end of November, it is not yet known on which list the listing will take place – Nasdaq? – but you already know the blue bird's stock ticker, which will be “TWTR”. The most credible rumors speak of a stock offering for a value of $1 billion, which would put the company's valuation at around $15 billion.
That sounds like a lot of money for a company that has 218 million users as of June 2013, but had revenues of $2012 million and net losses of $316 million in 80. The numbers for the first 6 months of 2013 show revenues of $253 million and net losses of $69 million.
However, revenues seem to be growing rapidly (see graph 1).
Analysts expect revenues of over $500 million in 2013 and $1 billion in 2014. So why should the social network of Twitters be worth an exorbitant amount: $15 billion? Are they all crazy?
The story is similar to that of Facebook, which fell to $18 a share after an initial valuation of 38, but is now worth 50 (see chart 2).
The measure most used to compare the value of these companies is to examine it as multiples of sales: Facebook is worth about 21,7 times the value of sales, Linkedin about 22,4 times the value of sales. Twitter would trade at about 16 times its expected sales value for 2014. In some ways, that's cheap.
Common sense honestly raises doubts about the adequacy of these numbers and the cumbersome theory of perfectly efficient markets (the assumption of which is that the market is able to price a security correctly at any moment) melts away like snow in the sun. But (there is a but)… these companies somehow changed (forever) our lives and those of societies around the world. Suddenly, with social networks, TV and radio advertising has become obsolete and decades of marketing rules have been erased with the clean up.
We all live (also) a parallel life on the web and this is where companies are rushing to communicate with current and potential customers. Perhaps in the USA – is it a coincidence that these successful companies were all born here? – have understood the value of social networks, companies with low current revenues but with a balance sheet crammed with information on millions of users. Information is true wealth and it is a asset which cannot be easily replicated. Perhaps the real key to success for the future.
What do you think, in Italy would we be able to appreciate and recognize the value in companies like these?
