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How Much Is Twitter Worth? Less Than You Think

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Twitter, the San Francisco-based micro-messaging startup, recently raised about $98 million dollars from T. Rowe Price, Insight Venture Partners, Spark Capital and Institutional Venture Partners, valuing the company at a whopping $1.1 billion. NeXt Up Research, the firm founded by veteran financial analyst Michael Moe, disagrees with that post-money valuation, and instead values Twitter at about $526-$674 million. NeXt Up’s research report is offered to users of SharesPost, a Santa Monica, Calif.-based private online exchange that allows the sale of shares of private companies to willing buyers. Most of their concern is coming from the lack of revenues and worries that any diversification into money-making services could alienate the Twitter user base. According to the report, Twitter has over 70 million users.

The company‘s revenue model has yet to be tested. We believe that most revenue generation options available to the company have the potential to alienate at least some of Twitter‘s user base. Twitter may not have adequate time to revise its models before it loses its critical mass and reputation. Our estimated valuation of $526M – $674M is below the recent preferred funding round at a $1.1B valuation. However, we note that the preferred shares benefit from liquidation preference that limit the downside. We expect common share valuation to be driven by the company‘s revenue growth and profitability potential over the next 3 – 5 years.

They are estimating that Twitter will make between $114 million and $134 million in 2013 and between $126 million and $148 million in 2014. I bet these numbers don’t take into account the gobs of money Twitter is going to be making by licensing its data to both Microsoft and Google. No one really knows how much the two giants are ponying up for the Twitter fire hose.


Nevertheless, the report points out that Twitter has a special appeal for marketers. Twitter can share in the revenues generated by big brands.

We estimate that Twitter‘s opt-in feature allows for one of the most cost effective approaches for direct marketers. The cost of an effective message through Twitter, in our estimate, is likely to be (depending on how Twitter chooses to price it) less than $0.50, far lower than other approaches such as telemarketing or direct mail, which can cost an order of magnitude more.

For instance, Dell has indicated that it generated $3M in revenues from June 2007 to June 2009, of which $1M were in the last six months. The followers of Dell (who have opted in to receive messages) soared from 11k in December 2008 to 1.3 million in October 2009. We believe there are hundreds of businesses which have the potential to generate over $1M in revenues, allowing Twitter to claim a share for referral.

This type of marketing approach is no different than the Fan Pages being established by large brands on Facebook. In both cases, users have to opt in to participate in various marketing efforts, essentially making them more valuable than recipients of, say, random email newsletter-based offers.

Here are some other tidbits in the report about Twitter that might be of interest:

  • The U.S. has the largest number of Twitter users at 57.4 percent, followed by the UK with 8.2 percent, Canada (5.9 percent), Australia (2.9 percent), Brazil (2.1 percent), Germany (1.6 percent) and the Netherlands (1.3 percent.)
  • Nearly 28 percent of Twitter users are above the age of 45, while 26 percent users are between the ages of 15-24.
  • About 18.4 percent of tweets emerge from Tweetdeck, while Tweetie accounts for 9.1 percent and Seesmic is at 6 percent of the total. Its web interface accounts for 17.8 percent of total tweets.


13 Responses to “How Much Is Twitter Worth? Less Than You Think”

  1. The decision to postpone a business model allows Twitter to claim valuation tied to the effects of Twittering rather than basic technical functionality of micro blogging. Twitter is in a business analogous to a company that builds roads. The road building business is far less interesting than the businesses and activities that roads enable. Twitter will not escaped getting valued old school on revenue growth and profit margin. Any attempt to profit from the indirect effects of Twitter (extracting a toll from businesses built along the road) provides an opening for a competitor.

    • The number of Billion dollar companies that “big valley vc’s” have passed on is numerous and legendary. There’s very little to infer from their decision not to fund Twitter. In addition, VC fund size and eventual success of early-stage portfolio investments are not well correlated.

  2. Value at this point is completely determined by what investors are willing to pay, but there was an interesting debate kicked off by Scoble a couple of months ago about this – My thoughts today remain roughly the same in terms of the value that Twitter brings to small businesses that we work with:

    * It is so open that it is possible to use it to listen to the real-time conversations that are unfolding on the web and leverage it to connect with people who are potential customers or partners for your business (especially with tools that make it easier than the native Twitter site).
    * the great APIs have enabled tool developers like CloudProfile to help build business specific applications that unlock the power of Twitter and then help to draw prospects and customers into deeper, more meaningful interactions.

    So it’s not that Twitter is the be-all-end-all tool. It’s just that it is the constantly in motion “front line” of where your business (or your individual) interests can connect with other relevant people in the world who you are not yet connected to. Backed by a powerful platform for then connecting with those people more deeply, it can be a tremendous source of ideas, leads, and fun for you.

    And that is super valuable.

  3. Imagine twitter shuts down for a day…
    Another view – how different (in terms of soundness) are the business models of twitter vis-a-vis youtube (prior to google acquisition)?

  4. All due respect to Mike, but his hypothetical valuation math is based solely on his/their conjecture on A) What revenue streams will be available to Twitter, B) When those streams will kick in, and C) How much those streams might eventually be worth. And if as you suggest Om, that they have omitted the “firehose fees” from the search giants, then their estimated valuation would be off (undervalued) by a factor.

    Their attempts to apply a discounted cash flow model to their “finger in the air” revenue guesstimates at this point in Twitter’s evolution is entertaining. But good for them, NeXt Up gets some free press for playing the skeptic by pointing out that Twitter currently lacks revenue – brilliant.

    • Jeff

      From what i understand – the firehose deals are going to become a major part of their revenue stream. Even if they are charging a couple of million $$s a month, that adds up to a pretty substantial revenue stream for Twitter. Say $1.5 M a month each from Google or Microsoft = $36 million or so every year. Nothing to sneeze at. Okay I have no clue how much they are getting paid, but I am assuming Twitter is making high seven digits in order to jutify giving away their prized asset.

      On NEXTup being skeptical: actually it is refreshing to think that way, though I agree their reasons are all wrong. My view is valuation for start-ups is essentially how much someone will pay for it, rationality be damned. :-)

  5. Ummm… We forgot about an old bloke who went to Harvard and was a US Senator. Well, he also became the President of the United States. Remains one of the top followed Twitter users, however his ID can said to ghost-maintained now. Presidency sure takes a toll on twitter users! haha! Specially if you are Barack Obama :)