Valuation

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Investments: Episode 49

Last night I started a conversation on Twitter and Facebook about Twitter’s valuation. Twitter raised another round of venture capital which put the company’s value at $3.7B. I Thought it was funny that Twitter is valued at $3.7B while Groupon turned down an offer of $6B from Google.

Thanks to ZFarls (@MaddenBible) and Terran Birrell (@TerranB) for riffing with me on Twitter. And also thanks to Michael Durwin and Eric Guerin for joining the conversation on Facebook.

Back in episode 18 I discussed how equity analysts come up with their price targets using Apple as an example.

Price is another word for valuation. What is the stock, which represents ownership of a company, worth?

There are two types of valuation: Buy Side and Sell Side. In stock parlance you often see Bid and Ask. What is someone offering to pay and what are you asking?

In Twitter’s case, the company needed to raise more capital and investors bought roughly 5.4% of the company for $200M which implies that Twitter as a whole is worth $3.7B or just under 20 x $200M.

Is Twitter worth it? Time will tell. They are only now beginning to monetize. Groupon however already has $100Ms in sales. 

Valuing potential revenue or actual revenue? Who do you think has more potential in the long run? Is Groupon’s market position defensible? 

What if Google decides to compete and use its $6B to do so? It already has millions of vendors buying Adwords and millions of sites using Adsense. Distribution wins. 

In the end we’ll have to wait for both to go public or be sold to know their true value.