Editor’s note: This article was first published in April 2014; Twitter’s market capitalisation of about $24 billion, its revenue multiple and LinkedIn’s valuation are figures from that time. Elon Musk took Twitter private in October 2022 at $54.20 a share, and it was later renamed X. This April 2014 view is kept as a historical record. It is not investment advice.
According to NYU marketing professor Scott Galloway, Twitter’s current share price is still crazy, despite the dizzying fall it has suffered over the last few days. The company’s market capitalisation currently stands at about $24 billion, which is 37 times its annual revenue.
Galloway compared Twitter with LinkedIn, pointing out that LinkedIn trades at 20 times its revenue, even though LinkedIn’s revenue is more diversified than Twitter’s. Twitter depends solely on advertisers, whereas LinkedIn relies both on advertising and on premium subscription payments, a business model that is generating recurring revenue for now.
According to the professor, Twitter could be in serious trouble, because in the vast online advertising business the winners will be Facebook-Instagram and Google-YouTube, while Twitter, Pinterest or Foursquare will have to settle for a tiny slice of the pie.
And the truth is that, as we have warned more than once, and setting aside the popularity of particular social networks or people’s taste for them, however much Twitter grows in number of users, it is probably the platform that will find it hardest to monetise them, because promoted tweets are not enough. Add to that the slowdown in user growth and some reports showing that users are becoming less and less active, and paying more than $10 a share means taking on too much risk, according to this professor.
Twitter went public amid expectations that were far too high, which is why investors sent its price soaring. But for Twitter to succeed in the future, it will probably have to reinvent itself and stop being what we know today as Twitter. Perhaps that change means becoming more like Facebook (with some improvements).
See also: Before Facebook, Twitter and Google, the future was TheGlobe.com
Investing in Twitter is therefore strongly discouraged.
Technically, however, there could be a technical rebound, since the stock is once again approaching oversold levels.
For our part, we still take a very bearish view of this company, which only feeds fears of a tech bubble.
Featured image: Xuthoria, CC BY-SA 4.0, via Wikimedia Commons.
