Motely Fool Reported on what would have been a “blockbuster” deal for us online marketers. Two of the BIG players in the social space partnering up. It was reported by Kara Swisher, from AllThingsD.com, Facebook offered $500 million in stock for Twitter.
The details and financials of such a deal are long and have many components before they go down, but truth is, while the economy is in a downturn, many big mergers, aqcuistions, etc are unlikely to happen unless one company is desperate or falling apart. Needless to say, neither of these companies will need a government bailout!
What makes Twitter so valuable?
Reality is that most of the times, these companies are all over priced. Is Twitter really worth $500 million dollars?
As it is one of a kind, becoming huge for marketing companies AND continues to grow at a healthy rate, the company still remains profit-less. Earlier this year, TechCrunch estimated the company to be worth at around $60-$150 million. Digg made its run for $300 million and no one budged, yet having a revenue model in place and much higher traffic (these are the basics from an outsider who isnt a finance guru).
When Microsoft took a share in Facebook, the social giant was estimated to be worth $15 billion. $15 billion dollars…some could make the case that it is infact worth that much, others would throw the price way down. The Motely Fool article explains why it ISNT worth that today:
- Valuations have fallen sharply since Microsoft slipped past Facebook’s velvet rope. Dot-com darling Google (Nasdaq: GOOG) peaked at $747.24 just a few weeks after the deal. It has gone on to shed roughly two-thirds of its value. By that gauge, Facebook would be a $5 billion company — but we all know that its worth was exaggerated to begin with.
- Facebook has grown more quickly than Google, but even social-networking top dog MySpace finds its parent company News Corp. (NYSE: NWS) trading at a third of its 52-week high.
- That $15 billion is greater than the enterprise values currently attached to Yahoo! (Nasdaq: YHOO) or eBay (Nasdaq: EBAY). However damaged those companies may be, they’re still proven, profitable juggernauts. Swapping either one for Facebook would be like trading Baltic Avenue — or at least St. Charles Place — for Marvin Gardens.
- At the time of the Microsoft deal, Facebook was gearing up to revolutionize social advertising with its Beacon platform. It bombed, proving overly intrusive.
Did Twitter make the right move? Quoting from the Swisher post, ”
I am more toward the middle of the road, not knowing–who really does?–what was the best move. Thus, I would agree with a sentiment in an email sent to me yesterday from yet another digital guru:
“I think strategic buyers are going to be considered as options for all venture backed companies going forward. Additional rounds of financing are not the given they have been in the past few years. Liquidity is at a premium I’ve never seen before.”
Yes, indeed, as in all things, it always comes down to money and means and time.
In other words, Twitter has made the big bet that it has plenty of all of it, to transform itself into a real business and killer app before others catch up to it.”
What do you think?
