Why Twitter is worth $1 billion - Stephen Baker

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Why Twitter is worth $1 billion posted on September 25, 2009

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I got pulled in yesterday to write a quick story on Twitter's $1 billion valuation. I hate market stories, whether they're analyzing the dollar, oil, interest rates, or stock prices. The marketplace puts a value on these things, based upon its read on the possible risks and rewards. Unless one of us sees a dark chasm or golden opportunity that everyone's ignoring, what's the point of arguing it? It's the future. We don't know. It's a little like the experts speculating on whether the Eagles will beat Kansas City this Sunday. One of them will win. That much we know--unless it's a tie.

That said, I don't understand the folks on Twitter and elsewhere who argue that $1 billion for the company is outrageous. A BusinessWeek analysis reports that H&M's brand alone is worth $15.3 billion, and that Google's brand is worth $31.98 billion. Even if you agree with me that those numbers are near meaningless, is it reasonable to say that Twitter's entire company, a global communications platform, doesn't even stand of chance of being worth $1 billion?

All these numbers, including Twitter's valuation, are wild guesses. Sure, someone can "do the numbers." They can estimate that Twitter's audience will multiply by a factor of 10 within five years, and that each of those users will generate a certain number of dollars per month. They can go through such exercises. But they have only the vaguest idea.

What they're betting on is greatness, a quality without a number attached. Twitter can become a great company, reach billions of people, and spawn businesses and services we haven't yet envisioned. It's possible. In that sense, this reminds me very much of the wild days of Europe's mobile telecom boom a decade ago. I was covering it 10 years ago when Vodafone launched a hostile raid on Mannesmann, the German mobile phone giant. Vodafone ended up paying $185 billion, most of it in bubble-inflated stock.

Phone stocks were sky high because investors saw the mobile phone companies, like Twitter today, as a platform for a new generation of communication and advertising. This hinged upon a host of new services and technologies, but it had the potential to be absolutely huge. (As it turned out, the mobile Internet took years longer than expected; the phone companies are still grappling with handset manufacturers, media companies and software developers for the spoils. Soon Twitter will be mining the same market for its share.) Twitter can be huge as well. Or it could fail. We don't know. That's what they call the money at stake risk capital.

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