On November 7, 2013 Twitter Inc. (NYSE: TWTR) officially became a publicly traded company, opening at $45.10 a share on the New York Stock Exchange. According to a CNN article at the time, the market valuation for the social media company stood at $24.4 billion USD when priced at $45 per share on that day. By late December 2013, $TWTR traded as high as $73 a share, its historic peak.
Today, $TWTR trades at just below $20 per share, with a market valuation of roughly $14 billion USD per its current outstanding share count of about 700 million shares. Compared to Facebook Inc. (NASDAQ: FB), which has a current market valuation of roughly $370 billion USD, $TWTR is valued at just under 4% of the social network giant. In fact, $TWTR is valued by Wall Street at $11 billion less than the upcoming Snapchat IPO, which is rumored to value the firm at $25 billion or more.
So how did it come to this point? I haven't written on the blog in a long time, but thought I would go ahead and chime in on the subject since its been a hot topic of discussion in the trading world. In disclosure, I am long $TWTR, and understand that the reasons for the slide in $TWTR's stock will vary depending on who you talk to. In this analysis, I contend that the market has undervalued both the progress that $TWTR has made in the three years since it has gone public as well as its potential for future growth when considering its intrinsic brand value. This is especially applicable to current speculation of a potential buyout of the company, which has yet to be confirmed by either $TWTR management or any rumored bidders.
In 2013, $TWTR's total revenue amounted to about $665 million USD, whereas in 2015, its total revenue exceeded $2 billion USD. The bulk of $TWTR's revenue is derived from advertising. Shortly after its IPO, $TWTR was projected to generate just over $1 billion USD in total revenue in 2015; $TWTR has thus exceeded this earlier estimate by nearly two fold.
$TWTR is synonymous to social media, but it has been redefined in recent times as also being a news medium and modern platform of communication that knows no borders when it comes to the sharing of public opinion in real time on varying subjects of interest to its users; these user thoughts and the exponentially growing data set representing them is simply invaluable to tech giants, advertisers, big media corporations, etc.
As Andy Kessler noted in an article published shortly before $TWTR went public entitled Why Twitter's IPO Is a Bigger Deal Than Facebook's, "Twitter, more than any other social media site, enables a conversation among groups of users. Often these conversations are short, lasting a few minutes before flaming out. Longer ones can last days. The bottom line for companies, as any marketer will tell you, is word-of-mouth is the best way to sell almost anything."
The aforementioned assessment is especially validated by the public discourse surrounding the current presidential election; in the 2012 election, presidential debate related tweets peaked at 10 million, whereas in tonight's debate a total of 17 million tweets were tallied, representing a 65% growth in user engagement.
Accordingly, if $TWTR is in fact currently considering bids to be bought out or does so in the future, it would be short-sighted of the management team and board to accept any offer that deeply discounts the company's established brand recognition and its accomplishments in solidifying its societal presence in the consciousness of discourse via live sports, election coverage, etc.
There are undoubtedly obstacles that $TWTR faces, such as growing its user base, but if it is acquired by the right buyer that can carve out a clear vision for both enhancing the user experience and the monetizing of it, $TWTR's inherent potential will then truly be realized.
And for prospective suitors, the consideration must be this: what is the value of $TWTR in looking ahead when compared to its IPO just three short years ago? In my estimation, that figure at the very least corresponds to the $24.4 billion USD value that the market assigned to $TWTR on its opening day. Such a market value today would price $TWTR at about $35 per share, just 6.5% of the current market valuation of $FB. Any serious bidders for the blue bird should assume that $TWTR shareholders will expect that the company's board concludes that a premium to this figure is justified in order to proceed with a buyout in light of $TWTR's demonstrated and future potential.