In my last post on Twitter, I hypothesized that the valuation of Twitter was based upon what investors had assigned as a value for Facebook a few months earlier. I want to make clear that I am not suggesting that this is a good way to value businesses but that it is the status quo.With relative valuation, the dangers of a bad initial valuation cascading into subsequent valuations is high and they get worse when the initial valuation is of a large company (Facebook is large, by the standards of networking sites) and done by what is viewed as a reputable source (private equity investors have an...
What is Twitter worth?
Yesterday's big news story, at least in valuation circles, is that private equity investors have invested $ 100 million in Twitter for a roughly 10% stake, suggesting a billion-dollar valuation for the nascent company.http://blogs.wsj.com/deals/2009/09/24/breaking-news-twitter-to-raise-100-million-from-insight-t-rowe-price-other-investors/Twitter, for those who may be living in the middle ages, has about 30 million members who post short messages (less than 140 characters) that other members can read (if they choose to follow your tweeting). Every celebrity (sports, politics, media) seems to be...
Buybacks and Stock Prices..
Floyd Norris has an article in the New York Times on stock buybacks:http://www.nytimes.com/2009/09/19/business/19charts.html?scp=1&sq=buybacks&st=SearchHe notes that buybacks are high when stock prices are high and that they fall off when stock prices are low. His conclusion is that this is irrational because companies should be buying back more stock when the price is low and less when the stock is high. While there is a point to his argument, there are two points he is missing:1. Buybacks are more about returning cash to stockholders and changing financial leverage than making judgments...
A Risk Argument: Democracies versus Dictatorships
A few days ago, Tom Friedman, the columnist for the New York Times, and best-selling author of books on globalization, evoked controversy when he opined that "one party autocracy" is not too bad if it is led by a "reasonably enlightened group of people, as China today". To be honest, I have never found Friedman's work to be particularly thought provoking, nor do I much care for his characterizations of globalization: flat earth, fat earth, round earth, whatever.... . However, his article did start me thinking about whether businesses face less risk or more risk in a democracy than in a dictatorship.As...
One year later: The lessons from the crisis
It is hard to believe that it has been a year since the crisis started - September 15,2008, to be precise. The papers are full of retrospectives, with opinions often overwhelming the facts. I am working on my book on what I learned from the crisis in terms of how I approached valuation and corporate finance. I will post the presentation that I am putting together sometime in the next week.While most of the articles in the media this week either rehash old stories or focus on human interest (such as looking at where Lehman's employees are today), there are two that I found particularly thought...
Access to webcasts...
I have been web casting my classes for a few years now and it has always been a struggle maintaining open access. New York University would prefer to have the web casts be behind a password and I would prefer that they be open access. I think I have the upper hand, at least for the moment.I do know that access to the web casts has been curtailed over the last few days. However, this is more the result of IT system upgrades than a deliberate attempt by NYU to restrict access. The problem should be fixed by next week and access should resume. I am sor...
