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Why Twitter Is Massively Undervalued Compared To Facebook

36 points by pathik 16y ago

jdp23 16y ago
BREAKING: Twitter investor asserts that Twitter is undervalued.
- gloob 16y ago
  To be fair, if I thought Twitter was undervalued, I'd probably be interested in investing in Twitter as well.
  - dasil003 16y ago
    And after investing your interest would be the perception that Twitter is undervalued...
- jfarmer 16y ago
  His arguments are either valid or they aren't. You should engage them on their merits rather than worrying about ulterior motives. Pretend the person you respect the most wrote that article. How would you critique it, then?
baq 16y ago
if anything, twitter is overvalued...
michaelchisari 16y ago
I would make the argument that both Twitter and Facebook are massively overvalued, only Facebook is much moreso. I'd want to see a solid revenue model that produced tangibly large profits for both of them before I'd stop being skeptical about their valuation. So far, I only see speculation, and given the effect of speculation in other, more tangible markets, I'm extremely wary.
- michael_nielsen 16y ago
  Facebook's revenues this year are expected to be in the neighbourhood of $1 billion (http://www.insidefacebook.com/2010/06/22/exclusive-discussing-the-future-of-facebook-and-the-facebook-ecosystem-with-ceo-mark-zuckerberg/ http://www.insidefacebook.com/2010/06/22/exclusive-discussin... ), a near doubling from last year. Given that, their current valuation is totally unsurprising.
  - michaelchisari 16y ago
    With $1 billion in revenues, that puts their valuation at over 33x their revenue. And their operating costs are also off the charts, so that's where questions about profitability come in, since investors expect to be rewarded at some point.
    - FreeRadical 16y ago
      Can you please be more specific where you say costs are 'off the charts'?
      - michaelchisari 16y ago
        Culling together various information, we're looking at approximately $100 million a year in new hardware, $20 million a year in leases. They haven't given out numbers for labor, bandwidth and energy (all huge, I'm sure), though there's plenty of articles talking about Facebook's costly infrastructure in the abstract.
    - iamcalledrob 16y ago
      You might be interested to know that Facebook is turning a profit, and has done for a while.
      - michaelchisari 16y ago
        I don't disagree with that, however, their profits have not kept pace with their valuation, and their first profitable quarter was only last year. Furthermore, they've taken a huge amount of venture capital in order to get to this point, and have had to get more at points for increased infrastructure costs.
al_james 16y ago
The author argues that the 'interest graph' is more commercial than the 'real friends graph'. True. However its clear to me that the 'real friends graph' is much more useful to real people. Facebook's 'real friends graph' is a useful tool, helping me keep track of people in my life. The 'interest graph' is a much less useful thing.
- webwright 16y ago
  I don't think the authors would argue with you that a friends graph is more useful to real people. I think the theory is that an "interest graph" is more commercially valuable. If you follow Apple, you're very targetable. If you're friends with your college buddies, you are not. I think Facebook realizes this-- which is why you're seeing them offering "like" buttons, share buttons, embeddable commenting functionality, etc. I honestly think Facebook is doing as good a job as Twitter at capturing interesting nowadays... And for a broader audience.
  - al_james 16y ago
    Yes I agree. My point is that just being a intrest graph service limits the service to the early adopter tech crowd. Facebook are in a much stronger position as (normal) people are there already with their friends, and they can grab the interest graph as well.
jderick 16y ago
Does anyone here use twitter? Can you explain how and why?
- dpcan 16y ago
  Thank you. If you use it, why? When? What for? How is it actually "used" anyway? If you tweet, do you also ever read what's ... tweeted?
  - michaelchisari 16y ago
    I found it very useful for following the Iranian uprising last year. Since then, however, I mostly use it for updates and promotion of my open source software project (Appleseed). As for more intimate discussion, I've never really grokked how to use it in that way.
- imack 16y ago
  It takes a while to find a use. Originally, I thought it was just the status feature of Facebook for people over 35, so I was wondering why everyone was so excited about a limited feature set. I've definitely come around. I don't think everyone uses it the same way, but I'll rhyme off a few uses I've found. 1 - Replacement for RSS. Follow the blogs you do on RSS and get push notifications of updates. Authors sometimes have smaller things to say than a blog post requires, so the feed acts as an added feature. 2 - Follow the doings of "niche celebrities" like Eric Reis and PG. They give advice and comment on recent events, but aren't really popular in the mainstream sense. 3 - Follow more general celebrities. It gives people you are a fan of a direct line to you independent of traditional media outlets. Think Conan when he was without a network, and Kevin Smith is doing some interesting things as well. Sure, Kim Kardashian has a huge following which she uses to hock products, but there is a massive audience who wants precisely that. 4 - Comedy feeds. I find when comedians have only 140 characters, the constraint makes the jokes more punchy. (plug: my traction deficient app http://laughlitmus.feedladder.com http://laughlitmus.feedladder.com is trying to capitalize on this; viral loops are a bitch) 5 - Real time events. You'll hear about an earthquake on trending topics before any media outlet. 6 - Following privacy paranoid real life friends. Twitter has a dead simple privacy model. Either people can publicly see your feed, or they have to approve you. Some people I know got fed up with the Facebook privacy shell game and switch to Twitter for this. 7 - Connecting with a loosely coupled community. For those of us not in the valley, finding fellow hackers can be troublesome, and when you do, you don't really need a heavy connection, but following each other on twitter is a nice lightweight way to see if the local tech event is going to be hacker or muggle heavy. 8 - Location based chat for conferences. Hashtags allow for people to mark a discussion about anything, and a lot of meetups will tell you the recommended hashtag so you can see what people are discussing in a specific place. I hate is the whole "Twitter is just people talking about what they had for breakfast" complaint, it really just meant you are following boring people. There actually exist a non-trivial set of people I know whom I am friends with on Facebook (and real life) but wouldn't follow on twitter because they're tweeting about stuff I have no interest in.
bugsy 16y ago
I must admit that after reading the title I was not surprised to see the disclosure at the top that the article was written by someone with a lot of twitter stocks he's probably thinking of unloading.
jonknee 16y ago
Twitter doesn't get a billion organic searches a day, so his numbers are far off into fantasy land. That number (if valid) counts all the auto-refreshes ("X new tweets"), trend browsing, API access from apps like TweetDeck, etc etc. Google makes so much per search because people actually sit down and want to find out something. Having an auto-refreshing search for your company name that generates hundreds of searches a day isn't going to ever bring a dime of revenue in for Twitter. To get realistic numbers you'd have to first find out how many real "I want to find" searches are happening and then see what they are searching for. If I'm typical, the search traffic won't be super lucrative.
thewordpainter 16y ago
consider how many businesses are reliant on twitter. facebook may have their hand all throughout the social graph, but twitter has given rise to an entire ecosystem that is not going anywhere. just think about all the social media (AKA twitter) jobs that have been created!
thirtyseven 16y ago
Twitter is massively overvalued because it's a fad. Can you imagine Twitter still being popular in 5 years? 10? What long-term potential does it have?
SteveMorin 16y ago
I am not really sure twitter is undervalued actually, compared to risk. I believe it has potential to be huge, but they haven't cracked the revenue nut. I believe a number of smart minds including Naval Ravikant and Adam Rifkin believe if they "get it right" they can be worth much more. I agree with the potential of twitter, but I don't believe they figured it out yet. It's their current value vs risk that they'll figure it out. Facebook on the other hand is bringing in revenue with a lot of potential to bring in a lot more.
njharman 16y ago
facebook is making others(zynga) tons of money. twitter not so much. a company creating a new market, new ecosystem is much more valuable. what twitter does could be a facebook app. the converse is not true.
- okaramian 16y ago
  Twitter is adding value to companies for marketing purposes. What about the old spice stuff? Or various companies reaching out to users when they complain about a product on twitter? It's far easier for companies to do this via Twitter than Facebook. Maybe the value added in that case is harder for people to measure, so it's being forgotten.
athst 16y ago
I totally agree with this. Twitter has created an entire communications platform, and its potential for business and monetization is only getting started. Whereas maybe 3-4 years ago I spent a bunch of time on Facebook, nowadays I find myself spending all of my time on Twitter because the people and interactions there are so much more valuable and interesting. You don't need to go to news websites or blogs anymore - all of the content comes to you. Surprised to see all this anti-Twitter sentiment on HN.
msort 16y ago
This article argues for potential. But for Twitter to be as high-valued as Facebook, it has to prove it can be adopted by average internet users. Twitter has such a potential, yet Facebook has already been achieved that. When I recommend Twitter to my friends, it usually goes like this: Me: Try Twitter, it is interesting. Friend: What can you get from it? Me: a lot of interesting updates from your favorite people and topics Friend: I already have enough internet updates. I shall pass... The point is that average user only has several web sites on their minds. There much be a good reason for them to use one more web site.
jfarmer 16y ago
I'm skeptical that Twitter "lends itself brilliantly to commerce." First, Twitter pulled the plug on their @earlybrid project (http://twitter.com/earlybird http://twitter.com/earlybird). I know some companies who ran deals through them and they produced disappointing results. Any story about why the future of Twitter is commerce will have to account for that. Second, there have been major changes in online commerce over the last three years, most obviously with companies like Groupon and Gilt. Commercial activity on Twitter seems a little "tabula rasa" right now. There are companies out there actively changing the ecommerce landscape. Twitter has massive usage, but it's ability to augment commerce is still a promise. Facebook has had a much bigger impact in online commerce. Facebook Credits are going to be everywhere. You can already buy them at Target, or whatever. Groupon's marketing spend was dominated by Facebook ads for a long time, and they (along with Zynga) more than doubled the CPC for Facebook ads over the last two years. There are two $1Bn+ companies built right off the back of Facebook. What's the biggest company built on Twitter? I can't think of a single interesting one. The sociology of Facebook doesn't support "commerce" in the sense of making FB posts about things you've bought, but I don't know that Twitter does either. So we're talking about monetizing things indirectly, e.g., running ads targeted against their "interest graph." What Zynga and Groupon did were essentially find a better way to monetize Facebook users than Facebook itself had, and acquired those users by paying Facebook for the privilege. It all hinges on Twitter's advertising product. We'll see how compelling it is and if someone can build a Zynga or Groupon on top of Twitter the same way those companies were built on Facebook.

36 points by pathik 16y ago

jdp23 16y ago

BREAKING: Twitter investor asserts that Twitter is undervalued.

gloob 16y ago
To be fair, if I thought Twitter was undervalued, I'd probably be interested in investing in Twitter as well.
- dasil003 16y ago
  And after investing your interest would be the perception that Twitter is undervalued...
jfarmer 16y ago
His arguments are either valid or they aren't. You should engage them on their merits rather than worrying about ulterior motives. Pretend the person you respect the most wrote that article. How would you critique it, then?

baq 16y ago

if anything, twitter is overvalued...

michaelchisari 16y ago

I would make the argument that both Twitter and Facebook are massively overvalued, only Facebook is much moreso. I'd want to see a solid revenue model that produced tangibly large profits for both of them before I'd stop being skeptical about their valuation. So far, I only see speculation, and given the effect of speculation in other, more tangible markets, I'm extremely wary.

michael_nielsen 16y ago
Facebook's revenues this year are expected to be in the neighbourhood of $1 billion (http://www.insidefacebook.com/2010/06/22/exclusive-discussing-the-future-of-facebook-and-the-facebook-ecosystem-with-ceo-mark-zuckerberg/ http://www.insidefacebook.com/2010/06/22/exclusive-discussin... ), a near doubling from last year. Given that, their current valuation is totally unsurprising.
- michaelchisari 16y ago
  With $1 billion in revenues, that puts their valuation at over 33x their revenue. And their operating costs are also off the charts, so that's where questions about profitability come in, since investors expect to be rewarded at some point.
  - FreeRadical 16y ago
    Can you please be more specific where you say costs are 'off the charts'?
    - michaelchisari 16y ago
      Culling together various information, we're looking at approximately $100 million a year in new hardware, $20 million a year in leases. They haven't given out numbers for labor, bandwidth and energy (all huge, I'm sure), though there's plenty of articles talking about Facebook's costly infrastructure in the abstract.
  - iamcalledrob 16y ago
    You might be interested to know that Facebook is turning a profit, and has done for a while.
    - michaelchisari 16y ago
      I don't disagree with that, however, their profits have not kept pace with their valuation, and their first profitable quarter was only last year. Furthermore, they've taken a huge amount of venture capital in order to get to this point, and have had to get more at points for increased infrastructure costs.

al_james 16y ago

The author argues that the 'interest graph' is more commercial than the 'real friends graph'. True. However its clear to me that the 'real friends graph' is much more useful to real people. Facebook's 'real friends graph' is a useful tool, helping me keep track of people in my life. The 'interest graph' is a much less useful thing.

webwright 16y ago
I don't think the authors would argue with you that a friends graph is more useful to real people. I think the theory is that an "interest graph" is more commercially valuable. If you follow Apple, you're very targetable. If you're friends with your college buddies, you are not. I think Facebook realizes this-- which is why you're seeing them offering "like" buttons, share buttons, embeddable commenting functionality, etc. I honestly think Facebook is doing as good a job as Twitter at capturing interesting nowadays... And for a broader audience.
- al_james 16y ago
  Yes I agree. My point is that just being a intrest graph service limits the service to the early adopter tech crowd. Facebook are in a much stronger position as (normal) people are there already with their friends, and they can grab the interest graph as well.

jderick 16y ago

Does anyone here use twitter? Can you explain how and why?

dpcan 16y ago
Thank you. If you use it, why? When? What for? How is it actually "used" anyway? If you tweet, do you also ever read what's ... tweeted?
- michaelchisari 16y ago
  I found it very useful for following the Iranian uprising last year. Since then, however, I mostly use it for updates and promotion of my open source software project (Appleseed). As for more intimate discussion, I've never really grokked how to use it in that way.
imack 16y ago
It takes a while to find a use. Originally, I thought it was just the status feature of Facebook for people over 35, so I was wondering why everyone was so excited about a limited feature set. I've definitely come around. I don't think everyone uses it the same way, but I'll rhyme off a few uses I've found. 1 - Replacement for RSS. Follow the blogs you do on RSS and get push notifications of updates. Authors sometimes have smaller things to say than a blog post requires, so the feed acts as an added feature. 2 - Follow the doings of "niche celebrities" like Eric Reis and PG. They give advice and comment on recent events, but aren't really popular in the mainstream sense. 3 - Follow more general celebrities. It gives people you are a fan of a direct line to you independent of traditional media outlets. Think Conan when he was without a network, and Kevin Smith is doing some interesting things as well. Sure, Kim Kardashian has a huge following which she uses to hock products, but there is a massive audience who wants precisely that. 4 - Comedy feeds. I find when comedians have only 140 characters, the constraint makes the jokes more punchy. (plug: my traction deficient app http://laughlitmus.feedladder.com http://laughlitmus.feedladder.com is trying to capitalize on this; viral loops are a bitch) 5 - Real time events. You'll hear about an earthquake on trending topics before any media outlet. 6 - Following privacy paranoid real life friends. Twitter has a dead simple privacy model. Either people can publicly see your feed, or they have to approve you. Some people I know got fed up with the Facebook privacy shell game and switch to Twitter for this. 7 - Connecting with a loosely coupled community. For those of us not in the valley, finding fellow hackers can be troublesome, and when you do, you don't really need a heavy connection, but following each other on twitter is a nice lightweight way to see if the local tech event is going to be hacker or muggle heavy. 8 - Location based chat for conferences. Hashtags allow for people to mark a discussion about anything, and a lot of meetups will tell you the recommended hashtag so you can see what people are discussing in a specific place. I hate is the whole "Twitter is just people talking about what they had for breakfast" complaint, it really just meant you are following boring people. There actually exist a non-trivial set of people I know whom I am friends with on Facebook (and real life) but wouldn't follow on twitter because they're tweeting about stuff I have no interest in.

bugsy 16y ago

I must admit that after reading the title I was not surprised to see the disclosure at the top that the article was written by someone with a lot of twitter stocks he's probably thinking of unloading.

jonknee 16y ago

Twitter doesn't get a billion organic searches a day, so his numbers are far off into fantasy land. That number (if valid) counts all the auto-refreshes ("X new tweets"), trend browsing, API access from apps like TweetDeck, etc etc. Google makes so much per search because people actually sit down and want to find out something. Having an auto-refreshing search for your company name that generates hundreds of searches a day isn't going to ever bring a dime of revenue in for Twitter. To get realistic numbers you'd have to first find out how many real "I want to find" searches are happening and then see what they are searching for. If I'm typical, the search traffic won't be super lucrative.

thewordpainter 16y ago

consider how many businesses are reliant on twitter. facebook may have their hand all throughout the social graph, but twitter has given rise to an entire ecosystem that is not going anywhere. just think about all the social media (AKA twitter) jobs that have been created!

thirtyseven 16y ago

Twitter is massively overvalued because it's a fad. Can you imagine Twitter still being popular in 5 years? 10? What long-term potential does it have?

SteveMorin 16y ago

I am not really sure twitter is undervalued actually, compared to risk. I believe it has potential to be huge, but they haven't cracked the revenue nut. I believe a number of smart minds including Naval Ravikant and Adam Rifkin believe if they "get it right" they can be worth much more. I agree with the potential of twitter, but I don't believe they figured it out yet. It's their current value vs risk that they'll figure it out. Facebook on the other hand is bringing in revenue with a lot of potential to bring in a lot more.

njharman 16y ago

facebook is making others(zynga) tons of money. twitter not so much. a company creating a new market, new ecosystem is much more valuable. what twitter does could be a facebook app. the converse is not true.

okaramian 16y ago
Twitter is adding value to companies for marketing purposes. What about the old spice stuff? Or various companies reaching out to users when they complain about a product on twitter? It's far easier for companies to do this via Twitter than Facebook. Maybe the value added in that case is harder for people to measure, so it's being forgotten.

athst 16y ago

I totally agree with this. Twitter has created an entire communications platform, and its potential for business and monetization is only getting started. Whereas maybe 3-4 years ago I spent a bunch of time on Facebook, nowadays I find myself spending all of my time on Twitter because the people and interactions there are so much more valuable and interesting. You don't need to go to news websites or blogs anymore - all of the content comes to you. Surprised to see all this anti-Twitter sentiment on HN.

msort 16y ago

This article argues for potential. But for Twitter to be as high-valued as Facebook, it has to prove it can be adopted by average internet users. Twitter has such a potential, yet Facebook has already been achieved that. When I recommend Twitter to my friends, it usually goes like this: Me: Try Twitter, it is interesting. Friend: What can you get from it? Me: a lot of interesting updates from your favorite people and topics Friend: I already have enough internet updates. I shall pass... The point is that average user only has several web sites on their minds. There much be a good reason for them to use one more web site.

jfarmer 16y ago

I'm skeptical that Twitter "lends itself brilliantly to commerce." First, Twitter pulled the plug on their @earlybrid project (http://twitter.com/earlybird http://twitter.com/earlybird). I know some companies who ran deals through them and they produced disappointing results. Any story about why the future of Twitter is commerce will have to account for that. Second, there have been major changes in online commerce over the last three years, most obviously with companies like Groupon and Gilt. Commercial activity on Twitter seems a little "tabula rasa" right now. There are companies out there actively changing the ecommerce landscape. Twitter has massive usage, but it's ability to augment commerce is still a promise. Facebook has had a much bigger impact in online commerce. Facebook Credits are going to be everywhere. You can already buy them at Target, or whatever. Groupon's marketing spend was dominated by Facebook ads for a long time, and they (along with Zynga) more than doubled the CPC for Facebook ads over the last two years. There are two $1Bn+ companies built right off the back of Facebook. What's the biggest company built on Twitter? I can't think of a single interesting one. The sociology of Facebook doesn't support "commerce" in the sense of making FB posts about things you've bought, but I don't know that Twitter does either. So we're talking about monetizing things indirectly, e.g., running ads targeted against their "interest graph." What Zynga and Groupon did were essentially find a better way to monetize Facebook users than Facebook itself had, and acquired those users by paying Facebook for the privilege. It all hinges on Twitter's advertising product. We'll see how compelling it is and if someone can build a Zynga or Groupon on top of Twitter the same way those companies were built on Facebook.