3 ms·

Like instagram, the value of twitter is not (per se) in its cash flow, but in its strategic function as a competitor to other media outlets (eg newspapers) and

by 001sky 13y ago

Like instagram, the value of twitter is not (per se) in its cash flow, but in its strategic function as a competitor to other media outlets (eg newspapers) and as a complement to others (eg, live TV commenting system). This makes the market value and the (true) cash-flow value perhaps non-reconcillable, in accounting terms. Instagram was worth $1B to FB (without any cash flow), because it could easily destroy 5x-10x that amount from FB's IPO valuation. A model for "valuation" is good CYA but nobody "needs" it when you are playing with orders of magnitude ROI. Just something to think about, when looking at valuation scenarios from Academics.

stormbrew 13y ago
While this (the second paragraph in particular) is a valid point, I'm not sure I see how it applies here. The value of a stock on an exchange is an aggregate of that stock's value to many investors. The value of a stock to any one buyer will obviously be different, whether it's a grandma picking her own stocks or a large institutional player considering a buyout. The former is relevant to the IPO in the short term, the latter not so much. Basically, I'd expect that the aggregate value on an exchange (as opposed to a buyout) going forward is going to tend to be more about the fundamentals (as the only thing that all investors have in common information-wise). At least in a scenario where there is no obvious buyout possibility in the short term.
- 001sky 13y ago
  The value of a stock on an exchange is an aggregate of that stock's value to many investors. This is a good point. But think of supply and demand, and how the market clears. Are the VC investors going to sell based on the same models that the retail investor is using? Probably not...And since the price is the <price at which bid/ask equate>, you need to look at the diversity of views on valuation. I guess that is more what I am saying.
PakG1 13y ago
I agree. What I am curious about is what happens when the competitors are destroyed? Is there a business to keep it sustainable? With Twitter, it's admittedly a bit easier to fathom than it would be for Instagram (at least for me). But I've never been able to find an answer for this question for this type of argument. What we're talking about is how to value a company's ability to destroy another company's value, not how to value a company's ability to create value. That's like the business of assassination. Assassins can say what their price is to kill someone. If you took that business away, and that was their only way to demonstrate worth, then what do they have left? They'd have to get into a completely different business to continue life. So if Twitter succeeds in assassinating Facebook's value, or even the entire company (unlikely, but let's just follow the line of thought to its logical end), what next? Where's their value going to come from next? If there was valid income generation that can simply take the place of Facebook (or anything else Twitter destroys), why couldn't that value have been measured already? Or if it is measured already, is it just like how the Internet has caused the music industry to earn digital pennies instead of the past's analog dollars? That kind of sucks overall from a valuation perspective. But at least you killed the giant! As General James Mattis once commented on military strategy and foreign policy following lessons from Afghanistan and Iraq: "You invade a country, pull down a statue, then say 'now what do we do?'"
rob08 13y ago
Notwithstanding, the valuation and its assumptions refers to, from what I understand, how a minority stock investor, such as ourselves - individuals, may value the stock for its IPO. If you or I buy a few shares of stock we'll likely not have any "synergies" to speak of so the actual earnings power of the company is important

by 001sky 13y ago

stormbrew 13y ago

While this (the second paragraph in particular) is a valid point, I'm not sure I see how it applies here. The value of a stock on an exchange is an aggregate of that stock's value to many investors. The value of a stock to any one buyer will obviously be different, whether it's a grandma picking her own stocks or a large institutional player considering a buyout. The former is relevant to the IPO in the short term, the latter not so much. Basically, I'd expect that the aggregate value on an exchange (as opposed to a buyout) going forward is going to tend to be more about the fundamentals (as the only thing that all investors have in common information-wise). At least in a scenario where there is no obvious buyout possibility in the short term.

001sky 13y ago
The value of a stock on an exchange is an aggregate of that stock's value to many investors. This is a good point. But think of supply and demand, and how the market clears. Are the VC investors going to sell based on the same models that the retail investor is using? Probably not...And since the price is the <price at which bid/ask equate>, you need to look at the diversity of views on valuation. I guess that is more what I am saying.

PakG1 13y ago

I agree. What I am curious about is what happens when the competitors are destroyed? Is there a business to keep it sustainable? With Twitter, it's admittedly a bit easier to fathom than it would be for Instagram (at least for me). But I've never been able to find an answer for this question for this type of argument. What we're talking about is how to value a company's ability to destroy another company's value, not how to value a company's ability to create value. That's like the business of assassination. Assassins can say what their price is to kill someone. If you took that business away, and that was their only way to demonstrate worth, then what do they have left? They'd have to get into a completely different business to continue life. So if Twitter succeeds in assassinating Facebook's value, or even the entire company (unlikely, but let's just follow the line of thought to its logical end), what next? Where's their value going to come from next? If there was valid income generation that can simply take the place of Facebook (or anything else Twitter destroys), why couldn't that value have been measured already? Or if it is measured already, is it just like how the Internet has caused the music industry to earn digital pennies instead of the past's analog dollars? That kind of sucks overall from a valuation perspective. But at least you killed the giant! As General James Mattis once commented on military strategy and foreign policy following lessons from Afghanistan and Iraq: "You invade a country, pull down a statue, then say 'now what do we do?'"

rob08 13y ago

Notwithstanding, the valuation and its assumptions refers to, from what I understand, how a minority stock investor, such as ourselves - individuals, may value the stock for its IPO. If you or I buy a few shares of stock we'll likely not have any "synergies" to speak of so the actual earnings power of the company is important