twtr01 Dick Costolo’s vision for Twitter is that it becomes the ‘fabric for all digital communications’

Nov 8, 2013

Twitter IPO: Does the future for Twitter justify the valuation?

By Peter Warner

WCRS

You may have seen lots of this yesterday: ‘Twitter set to debut, IPO is 30 times subscribed’ or ‘Twitter prices IPO at $26 ahead of stock debut’ alongside astronomical figures like 16 billion this and 232 million that. There has been a lot of discussion recently over the popularity, use and future of Twitter – and valuations based on these factors.
Twitter is actually still considered by investors as a relatively niche social network in terms of size – being smaller than ‘many of its less-known rivals, including Tumblr, Whatsapp and LINE’. In the words of one analyst: ”The practical matter is that this is a niche medium,” he said. “Their appeal, they will never be as broad as Facebook.”
So is it a good investment, or isn’t it? Forget the Financial Times! Here are some key points I think need to be considered when justifying Twitters valuation (which currently exceeds Facebook per active user):
They’re still yet to make a profit. To increase revenue, increasing their user base and engagement levels are key. The reported ‘Dark Pool’ of users who register and then abandon Twitter pose a problem. New users find it hard to follow conversations – #hashtag conventions and Twitters own taxonomy of words and phrases can be alienating to those not in the know.
Will a push to make it more accessible and drive mainstream appeal alienate its current users? There might be a limit on how far they can innovate before compromising the simplicity of the platform, which forms part of its core appeal as Alexei Oreskovic says, “The company prides itself on staying true to its roots: it lets people send 140-character messages and does not pack in scads of extraneous functions”
For those yet to give Twitter a go – the endless stream of ‘Twitter troll’ new stories, celebrity spats and selfies is probably a bit off putting.
On the flip side, going public will give them the cash needed to fund growth in emerging markets  and the nature of the platform makes it well suited to markets with limited connectivity.
Dick Costolo’s vision for Twitter is that it becomes the ‘fabric for all digital communications’, with the emerging ‘Internet of Things’ it’s quite possible this vision will become a reality ‘@me you’re running low on Rustlers Burgers Pete,  @fridge cheers mate’.
Almost all of Twitter’s revenue comes from advertising on its site, 65% of that is generated from mobile. As an inherently mobile platform this puts them on the front foot in regards to increasing smartphone penetration and falling connectivity costs. Their recent purchase of MoPub, a leading mobile ad platform, also suggests they’ll be able to ‘make money by helping other people buys ads – even if they aren’t Twitter ads’.
So is it a good investment, or isn’t it? I’m not going to sit on the fence – my answer is probably, yes. But then that’s coming from someone who once in their younger years invested a considerable amount of pocket money on Kinder Eggs in the belief the toys would one day be worth millions. Waste of time.