After the goldrush

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15 November 2013 | 0

Last week I looked at the potential of a successful Twitter IPO for establishing the worth of social media. Given the usage pattern of Twitter and its overlap with Facebook membership investors effectively bought in to a subset of the larger network’s user base.

At time of writing the news is good for Twitter. Shares are trading at a healthy $44.20 (not so far off Facebook’s $49.38) and the release of a new ‘self-serve’ advertising model in the UK should further bolster its bottom line. In contrast to Facebook, Twitter’s floatation has gone well, delivering a quick return on investment and rewarding anyone looking for a long-term bet.

In other news, a report on Valleywag said Google had tabled a $4 billion offer for Snapchat – a picture messaging service that automatically deletes images seconds after they are received.

It’s important to compare these two valuations as they speak to the central point of my post about social networks and the comparative value of markets. Snapchat’s largely teen user base of 150 million active users is worth less than a fifth of Twitter’s 232 million (currently $25 billion) more sophisticated clientele, which in turn is worth about a fifth of Facebook’s 874 million ($120 billion).

As more of these companies go public we’ll see more of a move towards demographic analysis as opposed to raw numbers. I’m going to stick with my original thesis that networks where the users have limited purchasing power will be more attractive as acquisitions than publicly traded companies.

With Twitter and Facebook providing an equilibrium expect the value of LinkedIn to rise and more casual networks to more manageable price points – say, the low billions.

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