So word has it that Twitter is going to IPO today. When a large, popular technology brand goes public it is always going to catch the attention. Who can forget the late 90s and early 2000s when anything a ".com" at the end of it was jumping on the stock on market.
But then there's Facebook. We remember the hype that got right? Kapitall implied it might be worth 36 trillion dollars in a video by comparing it to Microsoft and its growth. We all knew that wasn't going to happen, right?
With Facebook I made a prediction. I said that it would close at around $42-46 on the first day of trading and then slide down to $30, when the hype dies down. I wasn't that far off except that it was lower than I expected.
My prediction was based on the financials, but also on my gut. I asked myself, does Facebook seem like a $120 billion dollar company (which at the time would have been around a $42 share price I think) given the well-known problems with monetization and mobile. Is it really worth double what Ebay is, which has this nice Paypal business wrapped into it? I just didn't see it. Today, it does have that $120 billion market cap because it has answered those monetization and mobile questions emphatically.
This brings us to Twitter (TWTR). It looks like they are pricing it at $26 a share today. That would give it a valuation of $14.2 billion according to CNET or 18 billion according to MSN. (What's up with the $4 billion difference?)
My friend, Rob Berger at DoughRoller says that you shouldn't invest in Twitter. He makes reasonable points like a lack of earnings... they are losing money. However, the company is growing its revenue up 106% from last year. DoughRoller put out an interesting thought... even if Twitter had no expenses (which is an obviously absurd supposition) it would have a P/E of 32, given their projected revenue for this year. In comparison, Apple's P/E is around 13, so Twitter would still be 2.5x more expensive than Apple (again, with the assumption of Twitter having no expenses).
Here's the thing that gets me though? My gut. Is Twitter a $14 billion (or even $18 billion) company? As of today, the financial world has decided that Facebook is worth $120 billion. Is it that unreasonable to for Twitter to be 1/8th or a 1/10th that? I don't think so. If Twitter's revenue's grow another 75% (predicted some slowdown from the 106% growth), they'll have grown their top line enough to make DoughRoller's no expenses calculations seem reasonable. And while comparing a (very) hypothetical 32 P/E to Apple's 13 sounds expensive, it's a downright bargain compared to Amazon's P/E in the 1200's. While almost any company looks like a bargain in that comparison, it's important to point out that a comparison to Apple represents just one end of the spectrum. I'd argue that Twitter is closer to the Amazon end of the spectrum, because it does have the potential to grow revenues. When you make the crazy amounts of money that Apple does it gets impossibly hard to double it in a short time frame.
The thing that my gut likes most about Twitter is how the world is adapting to accommodate it. When you want a television show there's a hashtag, not just for the show, but often for specific scenes. This is tons of free advertising. I don't see other companies receiving this... and that includes Facebook. Also, almost every star I can think of is on Twitter. Imagine if you were to start a company and wanted to advertise on thousands of television shows and get the top influence-makers to actively your product. How much would you have to pay for that?
This is the kind of advantage that I think you get with Twitter that you don't get elsewhere.
In the end, I see two schools of thought. There's one taking a hardline of "Where's my profits? Without them, this is crap." and then there's a view that "Earnings will come just as they did with Ebay and Amazon who didn't have them for a long time." I'd place myself in the later view.
I'll be putting in a bid to pick up some Twitter today. I just wonder if I'll be able to get any for under $30. I predict a close of around $36.
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