As of this writing Twitter has a market capitalization of $24.46 billion dollars.
To put Twitter into some context, look at Hershey. (Founded in 1894, and on my mind during this Halloween season).
Hershey is valued at $21.66 billion. Last year Hershey took in $6.94 billion, and recognized $2.86 billion in profits.
Now I am not a finance guy. The only stock I own is in mutual funds. I do not buy, sell or analyze stocks.
But it is clear to me that the Twitter valuation is absolutely bananas.
There is no way that Twitter will ever earn enough in profits to justify being worth anywhere near $24 billion dollars.
For analysis from a real finance guy, go read what my colleague Anant Sundaram has to say about the Twitter IPO.
Twitter (the platform) might be great, but if Twitter went away tomorrow some other company would be able to stand up a very similar service very quickly.
And does anyone ever click on those sponsored Tweets? Does anyone think that they are anything less than annoying?
So why should we care that a company like Twitter is so ridiculously overvalued?
I’ll try my hand at 3 reasons, please add your own (or argue with my list):
Reason #1. Crazy Social Media Valuations Make It Difficult to Value Good EdTech Companies:
I like edtech companies because they have real customers. They have customers willing to give them money in return for a service. This is what should be valued. A valuation like Twitter, one based on hype and hope, distorts the economics of the entire edtech sector. It becomes harder to see, and judge, real value.
Reason #2. The Inevitable Social Media Price Declines May Damage Good EdTech Companies:
Sooner or later Twitter’s stock price will fall. I don’t know when it will happen, but I bet that when it starts to fall that it will fall fast. What will a declining market in social media stocks do to the edtech market? If investors get spooked by a deflating social media bubble will they be less likely to invest in edtech companies?
Reading #3. Smart People Go to the Wrong Places:
How many smart people are out there trying to cook up the next big thing in social media? Call me selfish, but I want to see more people trying to build companies in the educational technology space. More entrepreneurs looking at educational technology as a way to create shared value and long-term solid companies.
What do you think of the Twitter IPO and its implications for the world of educational technology?