Photo: Ian Schafer
The Wall Street Journal’s Corporate News Editor, Dennis Berman, spent 10 days trying to prove that Twitter was over-hyped at a $10 billion valuation.But “fact intervened,” he says.
Berman now believes Twitter is going to be the next Google.
Twitter has only generated revenue for the past three years, mostly via sponsored tweets — paid promotional placements that get pushed to relevant users’ Twitter streams.
But the efforts have been fruitful; eMarketer predicts Twitter will rake in $808 million during 2014. Investors think that number will be even higher. They think Twitter could be pulling in $1 billion by then.
And the social network already has 200 million active accounts. Twitter users increased 40 per cent during the last three quarters of 2012. It’s already making about $4 per active user.
If that growth continues and Twitter is able to make $7 from 500 million users, that’s revenue of $3.5 billion, which is reminiscent of Google’s 2004 revenue. Margins are reportedly high for Twitter than they were for Google, at 30-40 per cent.
“For simplicity’s sake, let’s reduce Twitter’s net margins to Google’s, which are a gusher-like 21 per cent,” Berman writes. “Value all those earnings at Google’s 17-times-trading multiple, and, voilà, Twitter has a value of $12.5 billion. And you needn’t tweak conditions much to get a higher number.”
So is Twitter a $10 billion company right now?
“Twitter isn’t worth $10 billion if you benchmark it to its current financials,” Berman writes. “But the prime question is just how big Twitter can get—and how profitable.”