Why $700 Million Is Too Much For Twitter

By Rory Maher - Wed 06 May 2009 12:22 PM PST

Rumors have been rampant this week about Apple (NSDQ: AAPL) using some its $29 billion war chest to buy Twitter for around $700 million. Plenty of bloggers are speculating about whether these rumors are true—we won’t waste your time with more of that. (And Twitter Founder Biz Stone said straight out on The View today that Twitter was not for sale). We’re more interested in the $700 million figure: Specifically, if Twitter were to be sold, is that the right price for it?

Internet companies with a lot of users but little-to-no revenue are often valued based on their number of visitors. Twitter reaches 18-19 million unique monthly visitors, according to comScore (NSDQ: SCOR). That $700 million price tag would then value the company at about $40 per visitor. How does that compare with the prices paid in some of the big social-media acquisitions of the last few years?

—YouTube was bought for about $16 per user.

—MySpace for $21 per user.

—Bebo for $35 per user.

More analysis, after the jump

Twitter is growing at an enormous clip—almost doubling its audience in March—and any interested buyer could legitimately base its valuation on what they think the size of Twitter’s audience will be a couple of months down the road. Still, if someone were to buy Twitter today, $700 million seems a bit dear, particularly given that we’re in a recession and Apple is known for being shrewd about the prices it pays to buy companies.

And, if you reduced the per-user multiple down to within the range of these other acquisitions, you’d have another problem: the VCs won’t be happy with their return. For example, at $18 per user, which is in the mid-range of the YouTube and MySpace valuations, the price tag would drop to about $300 million. But Twitter’s VCs, who have invested $55 million in the company over the past two years, would wind up with what is by their standards a mediocre less-than-five-times return on their investment (assuming typical founder stakes). VCs typically look for at least double that, particularly with a company that has as much buzz as Twitter does.

• As Apple’s Cash Pile Grows, Rumors of EA, Twitter Acquisitions Abound
• Twitter Added 5 Million Users In March

Source: http://www.paidcontent.org/entry/419-why-twitter-acquisition-rumors-are-unlikely-a-look-at-the-numbers/

Other great sources of info:

http://globalitandbusinessnews.blogspot.com/

http://globalbusinessnews.posterous.com/

http://kxlsyd.posterous.com/

http://twitterpulsepoll.posterous.com/

 

@globalnewsfeed - https://twitter.com/globalnewsfeed

@pulsepoll - https://twitter.com/pulsepoll

@kxlsyd - https://twitter.com/kxlsyd

 

 

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