Annualizing Partial Returns: The Case for Valuing Twitter at $2.7 Billion

A Case for Valuing Twitter at $2.7 Billion - Digits - WSJ

Quote:
'First, it is often difficult to come up with comparables (there has never been anything quite like Twitter) and the valuations often come before such important standards as, say, profits, so investors are left valuing a business based on such metrics as future revenue. "

First, Twitter is AOL Instant Messenger with Spamming Feature. Valuing Twitter is important only to the investment bankers would earn a commission and the early investors who will cash out.

That scathing assessment aside, the professor estimates Twitter going to have one billion users by 2013? Color me skeptical.

Whether it is the early estimates of internet growth or the estimates of the number of blogs in existence that inform my skepticism, I see a global population estimate of 7 billion people around 2013. Am I truly to believe that 1 in 7 people on Earth will be a Twitter user?

Just as projecting 20% growth per annum in perpetuity will lead to a company growing bigger than the economy, to project Twitter user growth to equal 1/7th of the world population in four years does not pass the sniff test.

GIPS disallows annualizing partial year performance for a similar reason. Prediciting the future is essentially a guessing game. Taking the best week of performance an asset manager had and annualizing provides such a large number that it too won't pass the sniff test.