I had to chuckle when I read the Twitter valuation analyses published by VentureBeat and Silicon Alley Insider. You may remember that The Standard has not been too friendly to Twitter recently -- it was included in our list of services that are likely to fail, and I observed a strange security issue earlier in the week. So I read with interest Peter Kafka's analysis on SAI. He started the ball rolling with some rumors about Twitter attempting to raise another round of funding, with talk of valuations ranging between $60 million and $150 million. He then acknowledges that Twitter's revenue is just a "trickle" and it's not clear what type of business model the service will eventually use. Nevertheless, he concludes that "based on Twitter's growth and brand dominance, $75 million post-money seems plausible. There must be a pony in there somewhere."
OK.
VentureBeat's MG Siegler added a bit more meat to the analysis, pointing to recent Twitter outages and staff shakeups, and noting that a lot of people still have no clue about the service. Nevertheless, he concludes that a liquidity event for Twitter will come in the form of a sale to one of the "big boys" -- Google, Yahoo, etc. Until then, "$75 million doesn’t seem too unreasonable."
Uh-huh.
Is it just me? Doesn't it seem unusual to look at a privately-held company with almost no revenue, a limited user base, longstanding technical problems, and then conclude it's worth $75 million?
I don't think so. No disrespect intended toward MG and Peter, but this is the type of thinking that got a lot of people in trouble during the last bubble. Whatever happened to basing valuations on real data, such as the number of active users, time spent on site, revenue, and other market metrics? My attitude toward making estimates may be old-fashioned, but it makes more sense. And right now, there's no way of knowing how much Twitter is worth. Judging by an apparent lack of revenue and growing expenses required to develop, maintain, and host the service, it's probably in the negative numbers -- unless its owners and investors have a legitimate, sustainable way of making money from it.
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Comments
Im glad u pointed out the fact that dubious "valuations" or basically, foolishness is what caused the last bubble.
Because MySpace, Youtube etc were sold for 8 figures or more doesnt mean people can go around buying up internet companies like headless chickens. Someone needs to have their heads screwed on straight and it seem u do
Another example of what we've been seeing for quite some time, in all valuations, but particularly in the Web 2.0 sphere: SWAG. The Scientific Wild-Ass Guess. Just because a tool is popular doesn't mean its creators will successfully monetize it, which is particularly true on the wild wild Web.
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