Matt Ryder explains why Twitter's under $100M annual revenue doesn't match its massive valuation. A $1M business can be valued at $900M based on projected returns. Facebook paid billions for WhatsApp not for its revenue but for access to its user data.
Twitter doesn't make that much money. It's less than $100 million a year. That's not that much money. When you go and raise capital, it gives your business probably an artificially high valuation. They'll have a look at like an internal rate of return. So it's like, well, if we're gonna come into this business, what can we get out of it? So they'll give you much larger multiples.
Then all of a sudden you have a business doing $1 million a year and it's valued at $900 million.
WhatsApp was bought by Facebook for a crazy, crazy, crazy, crazy multiple because it had the database of people and it could now communicate with people on a separate means. So the internal rate of return for Facebook is enormous because now it's got more people for its advertisers to go after.
So the value is not in the money it makes, but the other ways you can make money by owning the data that it has.
