How does LinkedIn's trading impact on users?
Twitter leaves two important questions unanswered before going public
Like Facebook, Twitter has largely mitigated the risk of a post-IPO crash. But two questions remain: 1. When does Twitter make a profit? And 2. How robust is the growth story?
Twitter has learned from the mistakes of Mark Zuckerberg: While Facebook collected 16 billion dollars in the stock market last year, Twitter wants to be content with one billion dollars. Even this shortage of the stocks on offer will probably lead to an oversubscription and thus reduce the risk of falling prices immediately after the IPO.
Twitter also has no problem with the second cause of the crash in Facebook shares, the lack of a revenue strategy for the mobile Internet at the time: 65 percent of sales are generated on mobile devices and even 75 percent of usage takes place on smartphones or tablets. And third, the timing could hardly be better. Because internet stocks run like clockwork all over the world. In the past six months, Yelp shares have gained 180 percent, Xing by 101 percent, Facebook by 82 percent and LinkedIn still by 45 percent.
In return, other questions will overshadow the IPO. For example: When do the profits flow that are supposed to justify a similarly high sales multiple as on Facebook or Linkedin? Because Twitter is by no means rated low, even if the official value has not yet been determined. But the stock was last rated at $ 20.62 by Twitter itself in August. With around 620 million shares in circulation, the market value would be around $ 12.8 billion, Bloomberg has calculated.
So if sales hit around $ 600 million this year, the valuation is 21 times sales. LinkedIn also has a sales multiple of 21, Facebook has a value of 19. According to this calculation, Twitter would be valued at the same level as its competitors, who had long been profitable at the time of going public. As if that weren't enough, Twitter is already valued at 15 or 20 billion dollars, which increases the risk of overvaluation.
Since the losses were a result of aggressive investments in data centers and staff, many investors will probably overlook them - if the growth story is correct. The picture is not clear, however: sales rose by 200 percent last year and will double this year if the half-yearly figures are extrapolated.
The user growth is causing concern, however, because instead of the expected 240 million, the Twitter stock market report only showed 218 million users at the middle of the year. Since the fourth quarter of 2011, the annual user growth has fallen from 117 to only 44 percent recently. Although Twitter justifies the lower than expected user growth with rejected fake accounts, the doubts remain.
Because the comparison with Facebook is important for the advertising companies and the stock exchange traders. The Zuckerberg network is currently showing with a number of new advertising formats that the search for the “statistical twin” who has similar interests works well among the vast majority of its users.
For example, online shops can now upload the database of their customers and Facebook searches for users who are similar to the customers and are therefore very likely to react to an advertisement from the shop. With one sixth of Facebook's user base, Twitter does not have these performance marketing opportunities. If Facebook can achieve significant economies of scale, Twitter could be left behind in the competition for advertising dollars. The acquisition of MoPup for 350 million dollars is supposed to bring the missing reach to Twitter. Whether this will succeed is still open.
The clear difference in the user structure remains disregarded: "Facebook is for the masses, Twitter for the elite", was the apt headline for Business Insider. Celebrities, politicians or the media set the tone on Twitter and provide a large part of the short messages, which are then disseminated by interested listeners, but also by countless automated bots. How many of the 500 million daily tweets actually come from machines that do not respond to advertising, no matter how beautiful, is not revealed by Twitter. (Or worse, bots that respond to the ad, but definitely won't end up buying anything.)
Twitter is set as a global news distributor and fulfills important functions. Neither Facebook nor Google can dispute this role from Twitter. Twitter does not have to fear for its existence, since users love Twitter. The company still has to prove whether the advertisers do it. Until then, Twitter should think about paid pro accounts. The willingness of professional users to pay would be high.
An increase in the pace of innovation could not hurt either. Because Twitter has not developed any significant new functions since it was founded. Intelligent filtering of tweets would be just as helpful as the now apparently envisaged use of direct messages as a messenger service. Unfortunately, WhatsApp, WeChat or Line first had to open up the market before Twitter came up with the idea of becoming innovative.
The company has not yet commented on the number of Twitter users in Germany. Market research results provide some indications. An extrapolation of the ARD / ZDF online study 2013 comes to 3.9 million people who use the service at least occasionally, whether as a writer / reader or only as a reader. However, the proportion of regular users is rather low: 1.26 million people use Twitter at least once a week, according to the study. That is 42 percent more than in the previous year. Only 1.17 million people actively tweet, which is an increase of 43 percent. Apparently, the majority of the newcomers are passive, so only reads, because the proportion of active users has fallen from 40 to 30 percent since the previous year, ARD and ZDF have found out.
Dr. Holger Schmidt is a sought-after speaker on all topics related to the digitization of business and work. As a business journalist, mostly for the Frankfurter Allgemeine Zeitung, he has been closely involved in the digital transformation for two decades. Today he is a columnist for the Handelsblatt, a lecturer at the TU Darmstadt and a book author.
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