What's Twitter's Real Value?
Elon Musk's decision to place the acquisition of Twitter on hold on valuation counts raises anew the question of what's the social media pioneer's actual worth.
The answer depends on the valuation model used.
Guru Focus' intrinsic valuation model places Twitter's value at $60 per share. That's close to 60% higher than its current market valuation of $37 per share and close to 10% higher than Elon Musk's offer to buy the company.
The problem with intrinsic valuation models is that they are sensitive to the assumptions made on future revenue growth and free cash flow. They have been erratic in recent years, meaning that Guru Focus' estimate isn’t that reliable.
According to Macrotrends, Twitter's annual revenue growth has dropped from 13.71% in 2018 to 7.43% in 2019. That's before rising to 36.63% in 2020 and falling to 32.9% in 2022. Twitter's free cash flow declined.
Guru Focus finds that Twitter has an economic value added (EVA) of roughly negative-7%, meaning that the company destroys rather than creates value as it grows. Its management is doing a poor job in managing capital. That's in sharp contrast to Meta Platforms' EVA, which is around 28%.
A low or negative EVA isn't unusual for young companies, as early investments do not yield enough returns to cover the cost of capital. Musk's management team may or may not do a better job of managing money should the deal be completed.
"I am not surprised to see Elon Musk put the deal on hold," Scott Miller, CEO of Centerpost Media, told International Business Times. "This is not uncommon in acquisitions, where the buyer brings up some concerns during the due diligence process. Sometimes those concerns are addressed in the way of a lower price or answered in a way satisfactory to the buyer. What is new is the fact that Musk is playing out his concerns publicly, using the very platform he is looking to purchase. There is value to Twitter, but I don't think it is worth $44 billion. My guess is Musk and Twitter will come to an understanding, and the deal gets done."
Chris Tompkins, CEO of The Go! Agency, thinks the actual value of Twitter is based on the question of age.
"From my experience running Twitter campaigns for our clients, I have found Twitter to be a great place to have real-time conversations with influencers and consumers," Tompkins told IBT. "When it comes to customer feedback or service, Twitter excels at helping brands connect with their consumers fast and effectively in a medium that is open. It presents lots of opportunities for brands that normally are closed off to lift the curtain on their customer relations and be authentic and engaged.”
What happens if the deal goes through?
“Expect Twitter 2.0 whereas there will be developments on how you can utilize Twitter outside the mold of tweets and DMs,” Tompkins said. “There is going to be an added dimension. I just can't say exactly what it will be. Is there a 'metaverse' play here? Too early to say."
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