A woman uses her mobile phone in Caracas March 29, 2010. The rapid growth of Twitter as an alternative channel of information in Venezuela has set off alarms for Chavez, who, after a decade waging a "media war" against their opponents, saw a side to have left unprotected: the Internet. To match feature VENEZUELA-TWITTER/ REUTERS/Jorge Silva (VENEZUELA - Tags: MEDIA POLITICS SCI TECH)Reuters
There is a lot of discussion right now revolving around what Twitter Inc. is potentially worth. According to a Wall Street Journal article, both Facebook Inc. and Google Inc. have held low-level talks with Twitter executives in recent months, discussing the potential to acquire the social networking site. That's not particularly surprising, but the dollar amounts being tossed around are, at least to some observers.
According to the Journal, a Twitter takeover could be worth between $8-billion (U.S.) and $10-billion. If you value the company based on its 2010 revenue of $45-million, that's an outrageous price. And if you value the company based on estimated 2011 revenue of about $110-million, well, that's still an outrageous price.
But this is where the debate starts: Just how do you value a company like Twitter? Sales and earnings potential might be relatively meaningless if the real value of the company -- as some observers have asserted -- is with its much-valued user data. Felix Salmon takes this approach a step further, arguing that Twitter also comes with a "control premium," as he explains.
"If Google and Facebook are fighting over Twitter, a large part of its value to each company is that the other one won't own it," he said on his Reuters blog.
He goes on: "And people looking to buy into Twitter at a $5-billion or $10-billion valuation aren't doing so because they've discounted a bunch of predictable cash flows and decided that the present value is that ginormous. Instead, the investment is more in the form of a hedge. Twitter just might turn out to be one of the most important and valuable companies in the world. And if it does, then everybody will have wanted to get in around now."
Who knows? Maybe he's right, and maybe Twitter will eventually be snapped up for a truly enormous amount of money. But as anyone who witnessed the dot-com bubble of the 1990s knows, many of these arguments -- including the control premium -- have been heard before. They didn't work back then. Is this time different?
David Berman