So I recently followed on a number of articles on Forbes regarding Twitter’s IPOs, which is certainly an usual thing for such a hot event, and picked up some thoughts and knowledge: (Warning: Scary Interesting finance stuffs below)
It is actually extremely hard to determine the value of Twitter, and therefore the decision whether or not to buy its stocks. A professor in Wharton Business School, Luke Taylor, gave his graduate and undergrad students an assignment determining Twitter’s value and share’s price. It varied. The reason behind this is that it is extremely difficult to determine the profitability of the company. Tech companies are just popular, not necessarily profitable. What is more, it’s also really hard to identify the market size. Twitter is surely popular, has a lot of users, but its market cap is not that large compared to Facebook, LinkedIn and a few other rigorous competitors.
Estimates of Twitter’s value from Wharton students
However, there are certain advantages we can see in the company. It has not reach its full potential. In fact, it lost over a million of dollars (Yes!) in the first 9 months this year. Thus, investors believe they should buy in Twitter’s stocks, as it might not lose much more money than the above number in the next 9 years.. So yes, it offers a bright prospect. Twitter also managed to avoid Facebook’s mistakes, for example by listing its IPOs on NYSE instead of NASDAQ like many other tech’s, or using money raised for operation rather than shareholders’ stake. Another interesting study has shown that a Twitter user is actually the most valuable social media user. What it did was simple math, taking the value of the company, based on its current stock price, and divide it by its number of users. So, for Twitter, 25.5 billion over 232 million users means 1 user is worth $110, compared to $98 of Facebook and $93 of LinkedIn!
It was fascinating reading these articles, and the bottom line I draw for myself: Finance is harsh! There are numerous underlying assumptions, which directly affect how much money goes into, or out of, your pocket. Thus financial ventures like Twitter’s IPO can really be called, as used in the article, “Art over Science”.
But, as they say, possibilities make all the fun!
I, unfortunately, have yet created a Twitter account. But here is my LinkedIn if you want a new connection.
Nam,
-> You might find it interesting to read these Forbes articles mentioned above:
Ten reasons why Twitter IPOs aren’t like Facebook
A Twitter, Facebook, LinkedIn user’s value
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