In our follow-up to the Twitter IPO story that broke last week, let us begin by considering the valuations for Twitter and why it is considered attractive to investors. Twitter is currently valued at $12.8 billion, a figure that is derived from the fair value that Twitter put on its shares in its IPO filing last week. Moreover, Ironfire Capital LLC and Gamco Investors Inc. project the San Francisco-based company could be worth $15 billion to $20 billion once it begins actively trading on the New York Stock Exchange. Industry experts believe that Twitter can increase its revenue at a rapid pace, especially as it expands globally and draws advertising dollars from companies seeking access to its more than 200 million monthly active users. Twitter has more than doubled revenue annually as companies advertise on its service, the filing showed. Moreover, Sica Wealth Management in Morristown, New Jersey, believes that the valuation is fair despite the lack of quantifiable profits. Sica predicts that Twitter’s revenue could grow exponentially as retailers and media begin to explore ways to attract new customers through the use of its platform. In line with Sica prediction, e-marketers also project a healthy advertisement revenue growth for Twitter as compared to Facebook (see the chart below).
On a more promising note, Global Web Index reported earlier this year that Twitter was the fastest growing network, experiencing a 40% user growth rate in the last half of 2012 as compared to rival Facebook, which was witnessing a 35% growth rate. (Chart below shows number of active twitter user growth from Q1’2010 until Q2’2013.)
Moreover, with the media talking about how the Facebook platform is witnessing a decline with developers, Twitter now has the opportunity to surge ahead due to its ambitions to integrate its platform with various innovative apps. Hence, Sica believes that Twitter may fetch a valuation of as high as $40 billion when it starts trading.