I can’t help myself. I need to say something about a post by well-known early adopter Robert Scoble on Twitter being worth $5 Billion.
First, let me summarize Scoble’s post. Really simply, it boils down to this: businesses. Twitter has seduced thousands of businesses to use it as their promotional tool, even over Facebook, and Twitter isn’t losing those companies anytime soon. With thousands of potential paying businesses, Twitter could generate significant revenue to justify a $5 billion valuation.
No go pro argument comes without a con, though, and my favorite counter argument comes from my friend Alex Wilhelm on TechGeist:
I fully agree with Robert that Twitter will not have trouble monetizing. I also agree that Twitter is kicking Facebook’s ass in the business domain. To think otherwise is foolish. Twitter is getting bigger, and it is not going away. Robert is right, correct, and dead on until we reach his financial numbers.
Essentially Alex plays the P/E game, where he estimates the potential revenue of Twitter, assumes a very high P/E (Price/Earnings ratio) of 100, and concludes that “at $125 per business per month, you need 38,666 paying businesses” to justify $5 billion.
Usually I take a middle ground, but in this case, I’m going to side with Robert Scoble, with one exception, which I will address at the end. Scoble doesn’t give out any numbers for his $5 Billion valuation, while Alex does. However, Alex ignores all of Twitter’s other potential revenue sources. A few:
– Twitter.com Advertising
– Mobile Advertising
– Twitter Search Advertising
– A Twitter version of AdSense
– Media Deals
It’s late, so I’m clearly blanking out on a half dozen other business models. Twitter Search advertising and a Twitter version of AdSense interest me the most, and you’ll probably see Mashable articles on both subjects at some point.
On top of this, I think Alex ignores the potential of individuals purchasing premium accounts. What, you don’t think Robert Scoble or Ashton Kutcher wouldn’t pay for some detailed analytics? Dream on.
So one last time, let’s do the numbers. Let’s assume a P/E of 100, like Alex does. Let’s assume 10,000 businesses and 10,000 individuals pay for Twitter premium accounts, and that it averages out to $100 a month:
100 x $100 x (10,000 x 2 x 12) = $2.4 Billion
Advertising gets trickier, but if you get 4 million clicks on a Twitter ad network worth $0.50 each, you’d already make up most of the difference.
Let me be clear: Twitter is not worth $5 Billion yet. But Twitter could get to that valuation with an advertising/subscription account combination. At the very least, I’d roll the dice on it.
Oh, and if your curious about my one exception, it is this: Facebook can still win over businesses that have chosen Twitter as their promotional tool. More on that in the future.
Rebuke fully accepted. I most assuredly left out too many other business models, I tried to keep from writing a book. But we came to the same conclusion: Twitter is not worth 5 billion yet. It might be at some point, but as of right now, it is not.
And hell yes, I would pay for a premium account. Please please please let me, Twitter.
Yes, it's not worth $5 billion yet, but I'd strongly consider the 1 year potential before selling for a lower valuation.
Hey Ben,
I think your right about twitter being monetizable, but the one thing I would take exception to is the P/E of 100. This is pretty high and would require an expectation of SUSTAINABLE huge growth over say a 10 year period. Now we clearly have seen P/E's this high in the past, but I will argue that it was part of the reason we are in the mess Stock Market wise that we have now. I would like to think Wall Street has learned its lessons but from what I see daily as I work with the Investment Banks, I suspect they will once again disappoint. Anyhow, I also think you are right on the on the other sources of revenue. There is definitely potential.
Rebuke fully accepted. I most assuredly left out too many other business models, I tried to keep from writing a book. But we came to the same conclusion: Twitter is not worth 5 billion yet. It might be at some point, but as of right now, it is not.
And hell yes, I would pay for a premium account. Please please please let me, Twitter.
Yes, it’s not worth $5 billion yet, but I’d strongly consider the 1 year potential before selling for a lower valuation.
Hey Ben,
I think your right about twitter being monetizable, but the one thing I would take exception to is the P/E of 100. This is pretty high and would require an expectation of SUSTAINABLE huge growth over say a 10 year period. Now we clearly have seen P/E’s this high in the past, but I will argue that it was part of the reason we are in the mess Stock Market wise that we have now. I would like to think Wall Street has learned its lessons but from what I see daily as I work with the Investment Banks, I suspect they will once again disappoint. Anyhow, I also think you are right on the on the other sources of revenue. There is definitely potential.
Not to mention all the businesses that can make money using the API and information publicly available. How much would businesses pay to lease the real time pipeline of Twitter? If I was Google I'd gladly pay monthly for that privelege (at least at this time).
Hey Ben,
I think your right about twitter being monetizable, but the one thing I would take exception to is the P/E of 100. This is pretty high and would require an expectation of SUSTAINABLE huge growth over say a 10 year period. Now we clearly have seen P/E's this high in the past, but I will argue that it was part of the reason we are in the mess Stock Market wise that we have now. I would like to think Wall Street has learned its lessons but from what I see daily as I work with the Investment Banks, I suspect they will once again disappoint. Anyhow, I also think you are right on the on the other sources of revenue. There is definitely potential.
Not to mention all the businesses that can make money using the API and information publicly available. How much would businesses pay to lease the real time pipeline of Twitter? If I was Google I’d gladly pay monthly for that privelege (at least at this time).
Not to mention all the businesses that can make money using the API and information publicly available. How much would businesses pay to lease the real time pipeline of Twitter? If I was Google I'd gladly pay monthly for that privelege (at least at this time).