If you are a Twitter (TWTR) monthly active user, or MAU, congratulations: You're a valuable entity. So much so that the market has decided you are more valuable than those Facebook (META 1.54%) or LinkedIn (LNKD.DL) guys. While this seems great -- after all, who doesn't like feeling valuable -- this should scare both current and prospective investors.
Forbes actually used a rather basic calculation to value each user:
Here's how the math works. Twitter has a $25.5 billion stock market capitalization, based on its trading price of about $46.50 late in Thursday's New York Stock Exchange trading. The company has 232 million active users, so — voila! — each user is being valued at $110.
And here are the breakdowns:
| Company | |||
| User Value | $110 | $93 | $98 |
Quite simply, Wall Street currently values a Twitter user as more valuable than a Facebook and LinkedIn user. This is interesting, because they currently generate the least revenue.
A bubble within a bubble?
Many analysts already think the social media space is already overpriced, a bubble reminiscent of the late 90s tech debacle. While I don't share that opinion, if it is true then Twitter is truly a bubble within a bubble.
Right now, LinkedIn trades around 19 times sales; Facebook trades around 17.5. For Twitter, that number is nearly 60 times. The other social media companies are showing signs of investor fatigue – both Facebook and LinkedIn reported great quarters, but investors grew skittish after guidance and various conference call remarks. Concerns about slowing growth and user engagement continue to weigh on LinkedIn and Facebook.
Twitter, on the other hand, doesn't seem to be affected by these same concerns – at least initially.
Of course, in the short term, the market is known to be wrong and will "reprice" (read: sell off) accordingly. This valuation is currently unsustainable: As a point of comparison, Twitter's market capitalization plowed past LinkedIn's, although the latter has generated over two and a half times more revenue over the past year. Oh, and both Facebook and LinkedIn have something called earnings – that's important too.
Final Foolish thoughts
Right now, the price is simply too high. It appears a combination of "IPO-euphoria," speculation, and bullish growth prospects have bid the company to unsustainable valuations. Twitter has a runway for growth and interesting monetization prospects going forward, but there are better deals in the social media space.
