http://www.economist.com/blogs/schumpeter/2013/11/twitters-ipo
At a valuation of $13.6 billion, Twitter would have a market capitalisation-to-trailing-12-month sales ratio of roughly 26, which is higher even than those of Facebook and LinkedIn when they went public. Yet Twitter has been coy about how exactly its advertising machine will be able to generate the billions of dollars of future revenues to justify such a lofty multiple.
But one thoughful estimate published on the same day that Twitter increased its price range concluded that the firm is in fact worth no more than $17 to $18 a share. BIA Kelsey, which analyses advertising markets and firms operating in them, says that Twitter faces some very big challenges just to get to the $5 billion of revenue a year it will need to generate by 2020 to justify a share price today of $17. Among other things, it notes that Twitter’s growth in America is slowing and that it is generating far less revenue from foreign users, who account for about four-fifths of its audience. Perhaps the hype around the IPO market right now will still make Twitter’s shares fly in the short-term. But they are unlikely to stay aloft for long.
