Valuation Expert Aswath Damodaran: Twitter With A $20 Billion Valuation Is A 'Moon Shot'
Today we have two wildly divergent opinions on the company's value.
NYU professor Aswath Damodaran, who specializes in corporate valuation, has a very conservative price for Twitter's stock.
Damodaran runs through all the numbers on Twitter on his blog. It's a dense read, and it factors in all sorts of parts of the business.
His conclusion: "At a $6 billion market cap ($10/share), I think it is a very good deal, at $10 billion ($17.5/share), I am indifferent to it, and at $20 billion ($35/share), it is a moon shot."
He says he could be wrong, but he's transparent in how he arrives at his numbers.
Robert Peck, an analyst at SunTrust, is also transparent in his analysis, with a 75-page report on Twitter.
His conclusion is radically different than Damodaran. Peck says, "We are initiating coverage of Twitter with a Buy rating and a $50 2014 year end price target. Our target is derived around a central tendency of value methodology that employs forward multiples of: 16x Revenue, 80x EBITDA, and other proprietary analysis."
Peck's analysis is slight more emotional than Damodaran's.
"When investors look at Twitter, it will be important to look at what the company could look like several years out, and what is driving the company in that direction," says Peck, "Much like Facebook one year ago, Twitter is in the nascent process of rolling out new products for consumers, as well as advertisers. We think this will drive near term revenue growth ~100% to ~ $1.2b in 2014. In addition, like with Facebook, the optionality of Twitter's reach (~215m active UVs) creates great financial and business model leverage."
Peck goes on to through out a few revenue opportunities for Twitter to pursue - stealing ad dollars from TV (~$500 million), search monetization (~$500 million), commerce (~$500 million), and app installs (~$500 million). We should note that Twitter tried commerce and search, and in each case it failed to gain much traction. People don't search in Twitter like they do Google, and they don't buy stuff, just like e-commerce is still tiny for Facebook.
The larger point, though, is that Twitter is just starting to really turn on the revenue engines, and it's entirely possible the company is ready to really grow.
Bloomberg News also has a round up of potential valuations from fund managers. The consensus seems to be that Twitter is likely to be at $20 billion or higher in its first trade.
This is all a warm up for when Twitter actually prices its stock and hits the public markets. It's gearing up for its roadshow where it will meet with institutional investors who will decide what they're willing to pay for Twitter. We'll see if they're more in the Damodaran camp, or the Peck camp in a few weeks.