Why Is Twitter Worth So Much?

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Source: http://www.flickr.com/photos/trekkyandy/

How much Twitter Inc. (NYSE:TWTR) is worth as a business really depends on whom you ask. According to Bloomberg, Brian Wieser at Pivotal Research Group thinks the company is worth as much as $19 billion; most analysts targeted a figure closer to $15 billion. The company’s initial public S-1 filing, released at the beginning of October, suggested the company valued itself at a more modest $9.7 billion, or about $13 billion including equity awards.

Twitter has exercised extreme caution during the buildup to its initial public offering. In the eyes of many potential investors, the company falls into the same nebulous category of technology and Internet startups that Facebook Inc. (NASDAQ:FB) does, and, as a result, carries some of the same dubious baggage. The platform is popular, but is it profitable? Revenues are increasing, but are they growing sustainably? Can mobile be monetized?

These questions and the general uncertainty that comes with any IPO (particularly in tech, and even more so with social media) have encouraged Twitter executives and the team of banks underwriting the offering — Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), and Morgan Stanley (NYSE:MS) — to effectively lowball the company’s valuation. According Securities and Exchange Commission filings made this week, Twitter will price its IPO at between $17 and $20 per share, seeking to raise approximately $1.4 billion  and possibly more if underwriters exercise a right to sell additional shares, thus valuing the company at about $11 billion.

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