Social Media Valuations Soar: Insights from a Twitter Co-Founder

Bijan Sabet, general partner at Spark Capital and Twitter board member, discussed the skyrocketing valuations of social media companies on Bloomberg TV. With Facebook's valuation reaching $50 billion and Groupon's approaching $3 billion, investors are wondering what the next big thing will be. Sabet, who was one of the first investors in Twitter and has a keen eye for talent, shared his insights on what drives valuations and how the landscape has changed since the last bubble.

Key Takeaways:

• Sabet believes that the best companies, such as Facebook, Zynga, Twitter, LinkedIn, and Groupon, are growing extremely fast, with revenue increasing logarithmically. This is in contrast to the previous bubble, where companies were valued without underlying business models or revenue.
• He attributes the current valuations to the companies' worth, citing the growth in revenue and the new distribution opportunities created by platforms like the iPhone.
• Sabet is happy with the returns on investments in companies like NextNewNetworks, which was acquired by YouTube, and views the valuations as a reflection of the companies' value.
• The concept of a "bubble" is overused and misapplied in the current context, according to Sabet, as the best companies are driven by underlying principles and are growing rapidly.
• Twitter's valuation is put at around $4 billion, with Sabet seeing this as a more accurate representation than secondary market valuations.
• Sabet downplays the significance of JP Morgan's reported interest in acquiring a stake in Twitter, stating that there are no plans for an IPO and that the company is focused on running its business.
• The use of social media in the Middle East uprisings has increased visibility and usage for Twitter and other companies, but Sabet cautions against overemphasizing the role of technology in these revolutions.

Statistics:

• Facebook's valuation reached $50 billion at the time of the interview.
• Groupon's valuation approached $3 billion.
• Twitter's valuation is estimated at around $4 billion, with Sabet seeing this as a more accurate representation than secondary market valuations.
• NextNewNetworks' acquisition by YouTube is cited as an example of a successful investment.
• Revenue growth for leading social media companies is described as logarithmic, with underlying principles driving their success.

Sources:

• BIJAN SABET, General Partner, Spark Capital, Bloomberg TV, March 10, 2011