Twitter Valuation Explodes To $7.7 Bn In Secondary Market

A recent auction in the secondary market valued Twitter at $7.7 billion. The auction, conducted by SharesPost, sold 35000 shares at $34.50 per share. Since Twitter has approximately 224 million shares, the price per stock leads to a bit more than $7.7 billion valuation of the company, which is the highest valuation of Twitter till date. Prior to this, the highest valuation of Twitter was estimated when reports of by J. P. Morgan investing in Twitter surfaced. J. P. Morgan was expected to acquire 10 percent stake in the micro-blogging company at a valuation of $4 billion.

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Back in December 2010, Kleiner Perkins Cufield & Buyers invested $200 million in Facebook. That investment saw the micro-blogging company at $3.7 billion. After some months, Andreessen Horowitz made another round of investment into Twitter. The investment of $80 million by Horowitz was not directly made to Twitter, as the VC acquired these shares from other stake holders.

Although Twitter is criticised for not having a definite business model, it does not fail to attract takers. A recent rumour stated that Facebook and Google are planning to acquire Twitter at a valuation of $8 billion to $10 billion. This rumour was brushed aside by Twitter co-founder Biz Stone who also said, “We’re very, very interested in building an independent company.”

The euphoria surrounding the shares of social media companies is phenomenal. Investors and VC are pouring in money into these companies. In the latest auction by SharePost, 80,000 shares were sold at a price of $33 a piece in an oversubscribed round of bidding, valuing the company at $85.5 billion. This is not the first time that Facebook has attained such an exploded valuation. In January, the previous auction of SharePost was held where Facebook attained a valuation of $82.9 billion and crossed Amazon.

Facebook, like Twitter also received a series of direct and indirect funding in recent times. First, Goldman Sachs and DST invested $500 million in Facebook, followed by the funding of $1 billion by non-U.S. investors through Goldman Sachs at valuations of $50 billion. In the past month, Kleiner Perkins Caufield & Byers also purchase $38 million worth Facebook shares valuing the social network at $52 billion. And now, General Atlantic is expected to buy 0.1 percent of Facebook at $65 billion valuation.

Other social media companies have also commanded investments at high valuations. Zynga the social gaming behemoth recently completed a $500 million round of funding which valued the company at $10 billion. Same is the case for Groupon, who refused Google’s $6 billion offer to sell it out, soon reached a valuation of raised close to half a billion dollars at a valuation of $4.75 billion. LinkedIn is also commanded a high price per share of $30 at the last SharePost auction, which valued it at $3 billion.

Are these high valuations and investments justified? Many would say they are not and some are even speculating that this is leading to the next dotcom bubble. But according to me, the present scenario is nowhere close to the dotcom bubble. Back then, VC and investors started pouring in money on companies which were not doing business and generating revenue. But, the present social media companies are doing a fabulous job and raking in huge sum of revenue through their business models.

Do you think we are moving towards the next dotcom bubble?

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