Wall Street Journal today reports that internet darling Twitter raised equity capital from investors several months ago in a transaction that valued the company at $255 million. What caught my eye?
Twitter has ZERO revenues and not even a hint of a business model. Yes, it has lots of users, but there are no subscription fees, no advertising......which means it has no earnings, no "cash flow". Isn't Twitter just a "feature", like Instant Message, rather than being a real company?
In the late '90s, we saw a full boat of venture capital-backed internet companies that never made any profits but raised money freely with little more than a hope and a prayer to go along with a slick presentation. Those valuations made no sense back then. Then the internet bubble burst in early 2000, ending the game with fortunes for some and financial ruin for others.
Now ten years later, it is startling to hear of a company with no revenues being able to raise equity capital using a valuation of $255 million where there are no earnings in the past, present, or forseeable future.
I know that there is little in common between Twitter and the 35,000 or so companies in the print and graphic communications industry, but what happens on Wall St sometimes comes to Main St a little while later and a bit repurposed. Not that we'll see crazy valuations like that.
But in the past, we did see, and may see again, private equity buyers with big checkbooks trolling for acquisitions of privately-held print and graphic communications companies.
A trend? Probably not. But amidst the gloom and doom of bankruptcies, bailouts, and financial blow-ups, it is somewhat refreshing to hear of at least one momentary revival of financial excess on the "greed" side of the spectrum.
UPDATE: After I went to post with the above blog, I happend to click on New York Times on-line and read that Facebook procured $200 million from an investor group that valued the company at $10 Billion. You guessed it, Facebook has not had a profit and expects to be in "postive cash flow" (whatever than means) NEXT year. Unbelievable.
Comments