Twitter: at $20bn, the social media company is overvalued

Elon Musk’s revaluation of Twitter feels like a sober admission of failure. A $20bn worth pegged to new worker inventory awards is lower than half the quantity he paid for the corporate. In actuality, it’s wildly optimistic. Worth Twitter on the identical metric as social media peer Snap and the fairness is value nothing.

When Musk closed his $44bn deal in late October, pushed by what he known as a need to champion free speech, the digital promoting sector had already crashed. Between the date he provided to purchase Twitter and the deal’s completion, Snap’s share worth fell 65 per cent. Meta’s was down 55 per cent. With out Musk’s bid to bolster it, Twitter’s market worth would most likely even have halved.

Since then, ructions have intensified. Whereas Meta’s income fell 1 per cent final 12 months and Snap recorded a 12 per cent achieve, Twitter’s is reported to have declined 40 per cent. The workforce is sad following large-scale job cuts. Elements of the essential supply code have been posted on GitHub, a internet hosting web site for builders.

As a non-public firm, Twitter doesn’t should report quarterly earnings. As a result of it’s lossmaking, it can’t be valued on trailing income. However Musk has beforehand stated that Twitter’s income this 12 months is projected at $3bn. Snap’s enterprise worth is the same as just below 4 occasions forecast annual gross sales. Multiply Twitter’s $3bn by 4 and the enterprise worth could be $12bn. That is beneath the corporate’s $13bn debt burden, leaving the fairness with out worth.

Musk’s ambitions are undimmed. He claims Twitter will finally be value $250bn. It’s laborious to see the place he’ll discover the cash to take a position. He additionally wants money to pay further inventory compensation whereas making $1.5bn of annual curiosity funds.

Musk is slicing prices. However the EU has advised Twitter to rent extra moderators to adjust to EU guidelines. A plan to take away official person verification in favour of paid-for checkmarks will sow additional confusion. In the intervening time, Twitter’s $20bn valuation is pure fantasy.

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