What Would a Twitter IPO be Worth?
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In recent weeks, the blogosphere has filled to the brim with idioms about Facebook’s (NASDAQ: FB) IPO flop, and the inability of social media websites to effectively monetize their user bases. It makes sense. There’s something undeniably proletarian about a platform that gives its users a free outlet to share ideas, as long as there is not too much influence from corporate big wigs. This “e-freedom” is one of the reasons why content aggregators like Reddit or Hacker News have flourished; you’re not going to be bothered with ads on these sites (assuming you turn off the former’s paid content window).
Interestingly, Twitter may be the one social media platform that can buck this trend. Originally launched in the summer of 2006, the microblogging network has grown to house more than 500 million users that generally welcome brands with open arms. As mentioned in this article, a range of Fortune 500 companies are using pay-to-play tweets, trends, and accounts to promote their products. Even the oft used hashtag, and now cashtag, is an ideal way to foster a corporate identity. It is estimated that around 20% of the site’s users follow a particular brand. These promotion tactics allow companies to reach their consumer base in a slightly more subtle way than an ad on Facebook or LinkedIn (NYSE: LNKD) would.
From a revenue standpoint, Twitter is still a newborn compared to FB, LNKD, and Google+ overlord Google (NASDAQ: GOOG), reporting a little more than $140 million in revenues in 2011. Twitter is, however, expected to eclipse the $1 billion mark by the start of 2016, which is an annual growth rate (122.8%) more or less on par with the likes of LNKD (138.0%), and faster than FB (59.5%). In terms of unique visitors, Twitter clocks in at around 40 million each month, ahead of Google+ (31 million) and LinkedIn (24 million), but behind Facebook (158 million).
The real wildcard, though, remains if Twitter can monetize these users. While Facebook makes an average of $1.21 per user each quarter, LinkedIn and Google make $1.76 and $7.14, respectively (and Google+ specific statistics are not available). At its current quarterly mark of $0.74 per user, Twitter has some catching up to do, though it’s worth mentioning that conservative estimates forecast its annual growth rate between 2012 and 2015 (22.9%) to trump both FB (4.7%) and LNKD (3.8%). Aside from the aforementioned marketing options mentioned above, it is expected that the site’s new self-serve advertising program aimed at smaller business will play a major role in this growth.
Now, it goes without saying that Facebook’s implosion has given Twitter execs reason to pause on a potential IPO; we’d be foolish to think otherwise. This does not mean that we won’t see a publicly traded TWIT (yes that symbol is available) in our lifetimes. Since its most recent round of funding, which amassed more than $1.16 billion, Twitter has been valued between $8 billion and $10 billion. Using this information in conjunction with 2016 sales estimates, we can make a back-of-the-envelope calculation of Twitter’s valuation. If it were to go public today, TWIT would trade at a Forward Price-to-Sales ratio between 8.0X and 10.0X, above the likes of FB (6.8X) and GOOG (2.8X), but below LNKD (10.8X). Due to Twitter’s innovative marketing advantages and impressive revenue per user growth, it appears that this premium may be warranted. While it is too early to make any claims with 100% certainty, ardent investors would be wise to at least consider the prospects of taking a position in a Twitter IPO if it does occur in the next couple of years.
Until then, WealthLift Insider will keep you updated on this situation, in addition to providing other trading ideas in today’s uncertain market environment.
Fool blogger Jake Mann doesn't own shares in any of the companies mentioned in this article. The Motley Fool owns shares of Facebook, Google, and LinkedIn. Motley Fool newsletter services recommend Facebook, Google, and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.