4 ms·

Interesting point. Let's see what that really means. Twitter was on track for 200m users in 2011 [1]. Twitter was valued at 7.7b dollars a few weeks back [2].

by orijing 16y ago

Interesting point. Let's see what that really means. Twitter was on track for 200m users in 2011 [1]. Twitter was valued at 7.7b dollars a few weeks back [2]. That's about $38.5 per user. Surely fewer than half the users would pay for Twitter, which would mean that those paying must be worth at least 77 dollars. At a discount rate of 15%, each of those paying customers must yield 11.55 annually in free cash flow (i.e. after costs) to justify Twitter's valuation. Of course, Twitter could always find ways to extract money from the non-payers, but yes, you bring up a great point: Is it reasonable to expect that half the users will pay about $12 bucks a year on top of his fractional costs to continue to use the service? [1] http://www.tgdaily.com/software-brief/52284-twitter-on-pace-to-reach200-million-users-by-2011 http://www.tgdaily.com/software-brief/52284-twitter-on-pace-... [2] http://www.mediabistro.com/alltwitter/twitter-7-7-billion_b6132 http://www.mediabistro.com/alltwitter/twitter-7-7-billion_b6...

tedunangst 16y ago
Cool, real numbers. :) I think monetizing by any means half of all users is very optimistic though. I have several accounts, long dormant, created as jokes. If that's typical (perhaps not), you'd have to divide by at least five or ten to get a real eyeball count.
- alexgartrell 16y ago
  http://twitter.com/#!/cooltedsays http://twitter.com/#!/cooltedsays
deleted 16y ago
[deleted]
vgurgov 16y ago
I believe that: 1) Its unreasonable to expect 50% of paid users for freemium service. 2) Twtr is expected to be a "growth company". This means that his investors expect this 7.7b valuation to grow significantly (we talkin 100s %), not just pay back in 5-6 yrs and/or bring revenue. Conclusion: Thats why Twtr just HAVE TO innovate and figure out how to make money on ads
pyre 16y ago
That's based on the assumption that Twitter's market value should be equal to the amount of revenue that they pull in on a yearly basis. Somehow that doesn't seem right to me.
- orijing 16y ago
  No, please read my comment again (I apologize if I were being unclear). I calculated how much free cash flow (a flow, which means it's not a stock) must be generated from each paying member (I assumed 50% paid) in order to justify its most recent valuation. It certainly is not revenue ("i.e. after costs"), and is on a flow. Believing that I said Rev(t) = Market Cap(t) is very wrong because I said Market Cap(t) * 0.15 = FCF.
  - pyre 16y ago
    Ah, I missed that. Though I was under the impression that revenue was cash flow, and that profits were 'after costs.' Maybe I'm misunderstanding the different between free cash flow and revenue.
  - ZoFreX 16y ago
    I didn't understand half of what you said... where would be good to start reading if I wanted to learn more of this stuff?
piguy314 16y ago
The typical Price-Earnings ratio for a tech company is about 20, which means twitter would only need to generate 1/20th of that amount per user to justify it's valuation. EDIT: After re-reading your comment it seems you've already incorporated this concept with your discount rate, I would argue that your conversion and discount rate are both too high. Premium conversion would probably be something on the scale of 1-5 percent, and the discount should be 5 percent (1/20).
Lost_BiomedE 16y ago
You made my day. I have been utterly confused why I had not seen DCF analysis used much on HN, given the nature of the site.

by orijing 16y ago

tedunangst 16y ago

Cool, real numbers. :) I think monetizing by any means half of all users is very optimistic though. I have several accounts, long dormant, created as jokes. If that's typical (perhaps not), you'd have to divide by at least five or ten to get a real eyeball count.

alexgartrell 16y ago
http://twitter.com/#!/cooltedsays http://twitter.com/#!/cooltedsays

deleted 16y ago

[deleted]

vgurgov 16y ago

I believe that: 1) Its unreasonable to expect 50% of paid users for freemium service. 2) Twtr is expected to be a "growth company". This means that his investors expect this 7.7b valuation to grow significantly (we talkin 100s %), not just pay back in 5-6 yrs and/or bring revenue. Conclusion: Thats why Twtr just HAVE TO innovate and figure out how to make money on ads

pyre 16y ago

That's based on the assumption that Twitter's market value should be equal to the amount of revenue that they pull in on a yearly basis. Somehow that doesn't seem right to me.

orijing 16y ago
No, please read my comment again (I apologize if I were being unclear). I calculated how much free cash flow (a flow, which means it's not a stock) must be generated from each paying member (I assumed 50% paid) in order to justify its most recent valuation. It certainly is not revenue ("i.e. after costs"), and is on a flow. Believing that I said Rev(t) = Market Cap(t) is very wrong because I said Market Cap(t) * 0.15 = FCF.
- pyre 16y ago
  Ah, I missed that. Though I was under the impression that revenue was cash flow, and that profits were 'after costs.' Maybe I'm misunderstanding the different between free cash flow and revenue.
- ZoFreX 16y ago
  I didn't understand half of what you said... where would be good to start reading if I wanted to learn more of this stuff?

piguy314 16y ago

The typical Price-Earnings ratio for a tech company is about 20, which means twitter would only need to generate 1/20th of that amount per user to justify it's valuation. EDIT: After re-reading your comment it seems you've already incorporated this concept with your discount rate, I would argue that your conversion and discount rate are both too high. Premium conversion would probably be something on the scale of 1-5 percent, and the discount should be 5 percent (1/20).

Lost_BiomedE 16y ago

You made my day. I have been utterly confused why I had not seen DCF analysis used much on HN, given the nature of the site.