Twitter IPO, yes or no?

How to value a tech company which doesn't make money?

Twitter's IPO is set to price today with stocks to begin trading tomorrow. I love Twitter. It's by far my favorite social network. You can be active or passive, meet people just by sharing common interests. Besides it's a great source of information (by the way, you know you can follow us on our account @SimplyNoRisk, we always try to tweet high-value information).

However, being nice doesn't mean buying the shares.

First of all, in SimplyNoRisk we try not to buy promises but facts. And if for whatever reason we want to risk a little bit, we prefer to put our money in start-up incubators or crowdfunding, where the prize can be worth it. The big money is already made in Twitter. The investors who funded the company at the beginning are the ones that should be really happy. As a rule of thumb, the revenue multiple for tech and biothech shares is between 3 to 5 times next-year's sales (we know... small companies but still). Twitter is going to start around 12x. It doesn't make money yet (I'm sure it will do, but probably not that much).

The incentives for these types of companies are to amplify the base: users, clients, clicks... It doesn't matter if they make money or not (check out Trulia, even though they get really interesting stats such as this one).

So, we are not buying, but this doesn't mean the price will go up crazily. Each person should know the waves he wants to ride.