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Aswath Damodaran on Twitter: Cheap at $6B, Fair at $10B

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Aswath Damodaran on Twitter
A little more than a week ago, I posted my first take on Twitter and argued that even in the absence of financial information from the company (since the prospectus had not been filed yet), you could price the company. Based on prior transactions in the company (VC infusions and acquisitions) and the multiples of revenues/users for other companies in the space (the social media medley, as I called it), I argued that Twitter would be priced at about $12 billion by the bankers.


I also argued that as a long term  investor, focused on value, you could not buy the stock, at any price, unless you gauged its value first, and promised to return to the company and value it, once the filings were made. Twitter did file its S-1 (the pre offering filing) late in the day on October 3 and I am going to give it my best shot. Since I will reference this filing through my valuation, you shoulddownload the filing and use it to not only follow my estimates but to change those that you don’t agree with. As with all of my valuations, I would hasten to add that this is my valuation and while it informs my decision on whether to buy or sell the stock, you should make your own best judgments about the company. (I know that this resembles the boilerplate disclosure that you see in every email that you get from your broker but I really mean this and I am not saying it to avoid getting sued.)

The state of the company 

Before I embark on the ambitious task of forecasting the future, I will begin by looking at the company as it stands now. The financial filings paint the picture of a young company with little in terms of conventional earnings or cash flows to back it up, but plenty of promise (a dangerous word). Let’s start with the income statement. In the table below, I list the company’s key income statement numbers from 2010 to 2012, with the 2013 data in the last three columns.
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