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Twitter Valuation

Price Multiples show how much you get for the price you pay. They can fluctuate drastically over time. Looking at price multiples over time and comparing to those of competitors will help to triangulate a reasonable valuation.

The valuation metrics below help us to get a sense of reasonable prices.

* Price–sales ratio, P/S ratio, or PSR, is a valuation metric for stocks.

It is calculated by dividing the company's market cap by the revenue in the most recent year.Or, equivalently, divide the per-share stock price by per-share revenue.a stock's current price by its revenue per share for the trailing 12 months: |

The smaller this ratio (i.e. less than 1.0) is usually thought to be a better investment since the investor is paying less for each unit of sales.

Price-to-sales ratio is a stock valuation metric that many analysts consider to be more reliable than the P/E or Price-to-earnings ratio. Sales do not reveal the whole picture, as the company may be unprofitable with a low P/S ratio.

Because of the limitations, this ratio is usually used for unprofitable companies, since they don't have a price–earnings ratio (P/E ratio). PSR vary greatly from sector to sector, so they are most useful in comparing similar stocks within a sector or sub-sector.

As business information given that a great part of the Internet business companies are running unprofitably and the fact that the net income of Twitter has been negative in three consecutive years ($-67.3 millions for 2010, -128.3m for 2011, -79.4m for 2012), we hold the view that Twitter should use PSR to illustrate the stock value. The chart below provides PSR of Google, LinkedIn and Facebook, for comparative reason.

* Price to Book, or P/B ratio, is a financial ratio used to compare a company's current market price to its book value. Calculated as book value divided by the number of outstanding shares.

P/B ratios are commonly used to compare banks, because most assets...