Gravity Meets Bubble? - Twitter Soars In Private Equity Valuation
Twitter is often grouped with other high flying private venture companies: Facebook, Zynga, and Groupon.
The common trait among these four is high valuations. But Twitter is the odd-man out here because it appears that its valuation is far higher than the other three.
All four are privately held, which means there is no public record of their revenues. However, their shares trade in private secondary markets and sometimes some financial results manage to leak out.
Henry Blodget, editor of Business Insider and a former Wall Street analyst, claims that sources close to Twitter said that revenues will likely be $140 million in 2011. With a valuation as high as $7 billion this represents a staggering 50 times revenue.
According to Mr Blodget's estimates, Facebook is valued at about 20 times revenue; Zynga at five times revenue; and Groupon at seven times revenue.
Twitter's valuation is an extreme outlier. There's two things that can happen:
- Twitter is leading where the rest of the valuations will follow.
- Twitter, without a main business model, will return to a more realistic valuation and burn many of the private investors that bought at the high valuation.
If the Twitter bubble bursts, will that affect the private equity bubble as a whole? Probably not because of the extreme case represented by Twitter.