Given how prices of all Internet2.0 stocks like Facebook, Groupon and Zynga nosedived after they listed, vertigo-struck investors have every reason to be cautious about Twitter Inc. In keeping with the modest size of its posts compared to Facebook’s, Twitters’s debut is going to be a much more modest affair than Facebook’s IPO valuation which, at one point, crossed $100 billion. The 7-year old micro-blogging site is hoping to notch up a valuation of $12.8 billion given the $20.62 per share it priced employee stock options at last month based on an independent evaluation—a $14 billion valuation, of course, would be more apt given the 140 characters Twitter is associated with. But even the $12.8 billion seems a stretch right now given its average revenues per user in the 3 months to June was 64 cents, less than half Facebook’s $1.6 and LinkedIn’s $1.53. Revenues for Twitter are picking up—last year’s revenues doubled to $317 million and they have more than doubled in the first half of 2013; but while losses were falling last year, they have begun to rise once again. The $12.8 billion means a valuation that is 28.6 times revenue over the past year, compared to Facebook’s 26 and LinkedIn’s 14.5, according to a Bloomberg report.
Investors, however, are unlikely to focus on just the obvious numbers since, while Twitter does remain disproportionately dependent upon American advertisers right now, and the pace of new users is slowing, Twitter’s real story is its transformation from a 140-character micro-blogging site to an online advertising business. That adaptive talent augurs well for a company—Google being able to monetise its keywords is another example of such adaptation. Purists will argue greater advertising will push away those who just want to air their views, but the same logic shows no signs of applying to television or others on the internet. And while others like Facebook are trying to adapt to mobile platforms from internet-based ones, Twitter is built for mobiles—65% of revenues come from smart phones and tablets. Another positive omen: after crashing to $17.7 last September, Facebook’s stock has doubled over the last 3 months. All indications are Twitter should be trading by Thanksgiving. Hopefully the party won’t be one where the stock ends up getting bashed.