So, according to this morning’s FT Twitter is valued at $4.5b as JPMorgan fund targets 10% stake. Just two months ago Kleiner Perkins invested $200m in Twitter inferring a valuation of $3.7b. A $800m/ 20% rise in two months ain’t bad – particularly for a company with projected revenues of just $150m this year!
Add to that the skyhigh valuation given to Facebook, LinkedIn, Zinga and others and you can understand why the majority of the calls I get from the media are about “another dot.com bubble”. But, of course, these companies are all private so, if there is similarity it might be with a Ponzi scheme.
Investing is NOT about “is this company worth £xm today?”. It is all about “Will this company be worth x times more tomorrow?” There is a growing feeling that the current new investors will dump the stock on a gullible public on an IPO. Or they will play the usual round of ‘pass the parcel”. As long as you are not the last one holding the stock before someone (like a certain analyst called Holway in 1999) writes an article entitled “The Emperor’s New Clothes”.
I was reminded of all this when I read in the FT ARM shines after bearish analyst relents Merrill Lynch said its team had underestimated both the speed at which Arm’s market was growing and the company’s opportunity to raise royalty rates. Merrill’s team had “failed to appreciate how little was priced into the stock for Microsoft’s future port of Windows to Arm”, said Merrill analyst Jonathan Crossfield. He forecast Arm to expand sales by 17 per cent annually to 2020.
But it was the last sentence that really made me sit up and explode. “So, while the stock traded on 52 times 2011 earnings forecasts, the valuation falls to 8 times earnings for 2020” he said.