The Wall Street Journal has set tech and investment banking pulses racing today with an article suggesting that Twitter may be a prime takeover target. Although reported talks with Facebook and Google have been “low-level” and don’t seem to be going anywhere fast, the article has well and truly put Twitter on the block at an estimated valuation of US$8 to 10 billion. Round numbers are so much easier when we are talking tech-based financial excitement, don’t you think? So let’s make it easy and stay with the 10 figure. Based on the report, that’s 222 times reported 2010 revenues of US$45 million or 100 times estimated 2011 revenues of US$100 million. And the reason it made a loss in 2010 is that it was investing in growth, both of data centers and employees. With 175 million users worldwide (more than the WSJ and New York Time and growing) plus new advertising revenues (and growing too), it sounds like a good deal, right?
Last time I had these sorts of conversations was about ten years ago. That’s when various friends and family were comparing notes about the Caribbean islands they were thinking about retiring to. We don’t live on a Caribbean island today, neither do they. So why are we back in bubble-land? (By the way since my last post on bubble or no bubble reports of secondary trading of Facebook suggest it is valued at more than Amazon now. Meanwhile the Huffington Post is being acquired by AOL for US$315 million.) There is no financial calculation that can make sense of these estimated valuations and yet venture-capital firm Andreessen Horowitz (of Andreessen/Netscape fame) said it bought more than US$80 million of Twitter shares through exchanges for private-company stock. They have been there and done that, so why are they along for the ride?
The obvious reason is that we are living in an inter-connected, relationship-based world, which is increasingly dominated by social media. While the business models of these social networks are generally still at very early stages, there is clearly money to be made by controlling captive audiences – although as I noted in my earlier post, one of the wild cards behind this assumption is that the captive audience will allow itself to be commercialized. Maybe; maybe not.
A more intriguing battle which seems to be taking place is between the current “giants” of the online world, including Google, Facebook, Apple, Microsoft and Amazon, which are fighting for turf in the interconnected world (and know each other well since it is a very connected world on the West coast of the US). The fight to “own” the online user and for share of “voice” is leading these players to increasingly explore on each other’s turf, as well as to try to control the up and coming areas which online users are increasingly demanding such as streaming media. Amazon is now competing in this forum with Netflix. How the battle between the giants will evolve – cooperation or increasing competition – remains to be seen and we will be monitoring how these key influencers try to shape the environment and consumer demand.
For now, I am still keeping my investment fund in my pocket. The one amongst the bubble pack that might be more tempting is LinkedIn. It has filed to go public and has a more attractive business user base, which is less likely to be fickle when confronted with commercial business models, since that’s what they do for a living. As one of our Twitter followers (yes, we participate too) commented on the post Social Networking: It’s For Life!: only until the next best thing comes along.
Which is probably where it is worth consulting today’s Dilbert (10 February). If you are not Facebook – and don’t want to pay the bubble price – or an investment banker lining up the next IPO, then it’s probably worth spending your time thinking about China and how it will change your world. That’s a long-term trend. Now wouldn’t be interesting if a Chinese company bought Twitter – Tencent maybe?