How to Value Twitter - Wall Street Journal

As Twitter Inc. lays the groundwork for an IPO, the question now is how should investors value the microblogging site. Slapping a valuation on a company like Twitter is no easy task, considering the limited details currently circulating about the company. Twitter hasn't revealed how fast it is growing or whether it is profitable. But other metrics give clues about what could lie on the horizon. Twitter has already achieved a valuation of more than $9 billion, as judged by the private share sales by employees to BlackRock Inc. earlier this year, WSJ reported, citing people familiar with that transaction have said. Since it's unclear if Twitter is profitable, an easy way for investors to judge the company is based on its sales projections. Twitter is expected to earn $583 million in advertising revenue this year, according to eMarketer Inc., based on the ads on its service dubbed "promoted tweets." The firm expects that figure to jump to $950 million in 2014 and to climb above $1 billion in 2015. Based off those figures, Anant Sundaram, a finance professor and valuation guru at Dartmouth's Tuck School of Business, provided a framework to MoneyBeat for how to try to value Twitter. He provided two models: One that compared Twitter to the average fundamentals of Facebook Inc. and LinkedIn Corp., and a second one based on a set of Google Inc.'s multiples that could be used as a guide for Twitter's valuation. The two models produced a value of between $5 billion and $7.8 billion for Twitter. Considering the recent investments that have valued the company at $9 billion, Mr. Sundaram's valuation estimates seem likely to fall short of the company's actual value when it hits the public markets, "This is simply a 'what if' analysis," Mr. Sundaram told MoneyBeat. "All we can really do is make judgments based on what other similar companies have done in the past…It's not like there's some magic bullet that we're missing here." Still, he noted that his valuations are based on a "very generous" set of assumptions. Such a valuation would put Twitter well short of Facebook's market capitalization, which is currently about $109 billion, according to FactSet. Facebook, of course, saw its shares tumble more than 50%, in the months after its IPO. Its shares now trade above its IPO price and hit a new all-time high this week. Other market observers argue Twitter needs to learn from Facebook's mistakes leading up to its debut. That, they say, is as important as any valuation frameworks that can be compiled. "For Twitter, it's going to depend on positioning and credibility," Donna Hitscherich, a finance professor at the Columbia Business School, told MoneyBeat. "A big part of the IPO process is the management team. These are the people that are going to be selling this story. You can have great technology, but if you don't have someone that's going to say 'here's how were going to take it to the next level,' that's a problem." via Technology - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNEAGqsOeUOn97tKwPnW5COtUibK3w&url=http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-327111/

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