Why social media is a minefield of valuations

SOCIAL NETWORKING

Priya Kodeeswaran, portfolio manager, RWC Global Growth Absolute Alpha fund, explains why social networks such as Twitter and Facebook are a minefield in terms of valuing their output.

Recently, two of the largest social networks delivered results which have substantially beaten expectations, yet experienced two very different reactions. Facebook was up 14% following its record results, while Twitter was down 24% following its first public results – despite beating expectations. Why the disparity? To answer the question, let us first start with what the essence of these companies are. These are ‘new age media’ companies. Media is defined as the plural of medium, and that is exactly what these social networking companies represent: a medium between users. Howeve...