In this second of two posts built around an article by Alexander Eule, “How Twitter Might Actually Be Worth $31 Billion”, which was published on November 9, 2013 on barrons.com, I’ll take a closer look at one of the assumptions at the core of Eule’s argument — Twitter is competing in Google’s market.
In his article Eule states “In fact, at current prices, they assume that Twitter’s nascent Internet ad strategy will be even more effective than the groundbreaking model created by Google . . . ” I disagree. As I wrote in the prior post to this blog, Twitter is not competing in Google’s business. The public can’t find anything on Twitter. The same restrictions hold true for facebook. Without a facebook account it’s still very difficult to access content published on facebook. So Twitter is much more a competitor to facebook than it is to Google, or even to LinkedIn.
So all of the financial projections included in this article (most notable of these being the $18 Billion “operating” profit on $47 Billion in sales, presumably, for the current fiscal year, which Eule claims for Google) aren’t relevant, at least as I see it, to Twitter. Google is available to the public for unlimited viewing of content. It doesn’t have a facebook-like product, despite a lot of effort to craft Google Plus into one.
Neither do I find the products Google offers to be comparable to Twitter’s online real estate offer. Google is in an ever growing number of horizontally managed businesses. Increasingly, quarter after quarter, the real Google revenue drivers can be elusive. Are they making money from click advertising, only, or is Motorola Mobility, or Chromebook hardware contributing substantially to their bottom line? Further, if Google’s Q3 2013 Quarterly Earnings Report can provide us with useful information about the true profitability of their business, then I don’t see how Eule gets to the $18 Billion figure. GAAP net income for the quarter was $2.970 Billion, a little over 40% of Microsoft’s total ($6.4 Billion) net income for the comparable business period (Q1 FY 2014).
In my opinion Twitter, like facebook, will face some daunting challenges monetizing its precious online real estate to its real customers — the 230 million “Twitterers”. If Google is posited as being in some enviable position, I prefer the Microsoft story.
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