To Buy Or Not To Buy? The Twitter Question | TechCrunch
Adam Rifkin stashed this in Investing
Editor’s note: Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation. Follow him on Twitter @AswathDamodaran.
As the offering date for Twitter approached, the bankers could not seem to make up their minds on the pricing, with the offering price rising from $17-$20 barely two weeks ago to $23-$25 last week to $26 yesterday. The stock opened today, about an hour later than expected, at an eye-popping $45.10 a share, up 73 percent from the offering price. As you watch this process unfold, with a mix of wonder, greed and cynicism, the question that is begging for a response, is whether you should try to partake in this frenzy.
My valuation of Twitter yields a value of $18 per share and assumes that revenues will climb to about $11.5 billion in 2023 (giving Twitter about 5 percent to 5.5 percent of the online advertising market then), that the pre-tax operating margin will increase over time to 25 percent (about 5 percent lower than Facebook but about 5 percent higher than Google) and that a dollar in additional capital invested will generate $1.50 in incremental revenues.
To justify the $45 per share, you would need the company to reach much higher. By my calculations, Twitter will have to generate about $32 billion in revenues in 2023, giving it, by my estimate, about 15 percent of the online advertising market in that year.