Assuming they were for sale that is. The San Francisco Chronicle quotes sources giving a wide range of valuations on these two companies:
- Facebook: From $5 Billion to $35 Billion
- Twitter: From $656 Million to $1.5 Billion
Why the wide range in valuations?
First, you look at the more traditional methods of valuation:
- Current and projected revenue streams.
- Current and projected profit streams.
- Market share. Let’s face it, if you aren’t #1 or #2 in a “network effect” business, you are no place at all in your market.
- Growth. Especially such that it would move the company to a #1 or #2 position at some point in the future.
Then, you get into the more interesting area: Synergy. Synergy is probably the most abused term in the history of corporate acquisitions. Surveys show that planned synergies between companies rarely happen. The vision has to turn into execution and that is where the ball often gets dropped.
When Synergy Fails
- GM and Hummer. GM has failed to sell of this business and is now quietly shutting it down – at great loss.
- AOL and Bebo. AOL paid $850 million for social networking site Bebo. AOL has been discretely shopping the business and may shut it down in the next month.
- The Grandaddy of Them All: AOL and Time Warner. Stockholders lost more market value on this “merger” than on any other in the history of the universe!
When Synergy Actually Works
- YouTube and Google. When Google bought YouTube, most “experts” said they overpaid. See Blog. Does anybody think this was a bad move today?
- Cisco does an amazing job of acquiring young companies and integrating them into their strategy. The Flip acquisition looked like a head-scratcher, but is key to their strategy of communications, collaboration and video today.
Google was able to integrate its intelligent advertising business with YouTube and to monetize the huge audience YouTube that brought to them. If you think of YouTube as a video search engine, then they were probably the second biggest search engine (to Google itself) at the time of acquisition.
AOL and Time Warner on the other hand were culturally at war from day one, never integrated their businesses in any meaningful way, and the rest looks like something from a disaster flic.