Internet value pops can’t be extrapolated for ever
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK — The “Twitbook curve” can’t be extrapolated indefinitely. Facebook and Twitter’s implied valuations are roughly tripling annually. The former’s worth has theoretically run up from $50 billion to $65 billion in just two months, while Twitter is now worth more than $4 billion in gray market trading. This explains the lack of any rush to sell out to the public. But the trends get silly quickly, and social network owners shouldn’t get too greedy.
Few large capitalization companies have ever appreciated as fast as Apple has over the past two years. Its shares have roughly quadrupled in value, and are now worth about $330 billion. The only larger U.S. company is energy giant Exxon Mobil at $420 billion or so.
Suppose Facebook’s value kept tripling every year. It would be worth well over $500 billion by early 2013. Twitter would top Apple’s current value two years later. But of course this kind of thing almost never happens. Big companies’ growth usually slows far before they reach such massive size.
One reason that has to happen is particularly clear from Facebook. Over the past two years, the social network’s user base has increased from 200 million to about 600 million. That’s almost one in every 10 people on earth. If the growth rate could be maintained, every single human would have an account by the end of 2015.
Even Facebook can probably wait — a bit — to go public. Scads of users are still signing up for the service, advertisers are becoming more comfortable with it, and investors can’t get enough of the few shares that have become available. But founder Mark Zuckerberg might keep in mind that even Google took to public markets when it was worth “only” $23 billion.
Twitter, which is earlier in its development, has more room — hence co-founder Biz Stone’s message this week that an initial public offering wasn’t on the radar. But even Stone has to worry about how the service will ultimately make money. There’s also the broader question of when investors will again blow cold on the technology sector. Internet tycoons shouldn’t assume they’ll blow hot for ever.