Today it was announced Twitter took $35m+ in new investment - as we
noted earlier, it needed it to be sure of a 2 year+ runway. But is it worth it? Lead investor Todd Chaffee of IVP noted (
from TechCrunch) that the core logic for investing was:
Twitter does three things. It facilitates social connections with friends, colleagues, writers, and celebrities. The second is knowledge transfer. It is a real-time mechanism for tapping the wisdom of millions of people. The third is social expression. It is a mechanism for the global community to express itself.
Sounds good, but how will it make money? Chaffee is not so worried about that just yet:
I love that here is this cry for revenue generation out of a company not even two years old, Relax, it is coming.
But what gave him the confidence to invest? He ticked off four characteristics of Twitter that make it a potential game-changer.
1. Open. That makes it easy for others to build on top of Twitter and it also makes it searchable.
2. Real time. It is a huge database of what is happening right now.
3. Ubiquitous. You can get to it from just about any device.
4. Scalable. (Don’t laugh)
5. Persistent. It allows for an archive of what is happening and what has happened, which is searchable (see No. 1).
Chaffee says:
[Twitter is] the only thing we’ve found that has all of those things. None of the other things out there—Facebook, YouTube, LinkedIn—has all of those variables. That is why Facebook tried to buy them.
All very stirring stuff, and I can't put a % uplift on say persistence or ubiquity. The main point to me is the opposite - its not just a social net, its a unified comms transport mechanism and is turning into quite a little realtime news engine and e-commerce traffic director (sends
more traffic to Etsy.com than Facebook which has 10x the user base), and that in my view gives it a different flavour, as it doesn't have to rely on Ads for revenue
So whats it worth - well, our valuation system puts Facebook at about $2 - 2.5bn with 150m users, so assuming:
- Twitter users have a similar NPV lifetime value per user as the range of SocNet exit valuations (c $14 - $21)
- Twitter has around 10.5m active users (a 900% growth on the 1.3m reported last March)
Then we would value it at about $140 - $210m, and we'd incline to the high side given its growth rate. Given its at a far faster rate in its growth cycle than Facebook, and its hot in a world of old prospects, $230m is probably on the "not stupidly overpriced" side as an investment premium for the new investors.
Now, I hear you say - those valuations were from Bubble-Land - possibly, we use a bunch of exits from Flickr on up and ignore the way overpriced Bebo* and $15bn Facebook ones. $21/user is the Last.fm & MySpace level, $13 the Photobucket/Flickr level, and this thing is growing very, very fast and is still very small - even if 900% growth per annum goes down by 90%, the company is still going to near double in size next year.
* Bebo was higher as it seems they had (ahem)
overestimated their active users at time of sale, but were in this range at the top with the originally reported user base.
