Time Revenue Method

Group 4 - Assignment 3

Group - 4 (4 people)
1. Sagar – A00177059

2. Fazaluddin Nizamuddin Syed – A00170442

3. Akshay Kumar

4. Anas Patel - A00179310

5. Tabish

College Name: Canadore College

Course Name: Business Process Analysis

Professor Name: Ms. Ashneet Kaur Dhani

Due Date: December 10th, 2023

Time Revenue Method

One of the most important components of determining a company's value and potential is

still business valuation. The Times Revenue Method is one of the more popular and easily

understandable methods of valuing a company. It uses a multiple of the company's revenue to

determine its approximate value. Despite its simplicity, this approach necessitates a sophisticated

comprehension of the market, the industry, and the qualitative elements of the company being

appraised. This essay aims to explore the complexities of the Times Revenue Method, looking at

its use, formulas, examples, advantages, disadvantages, and the value of using additional

valuation techniques for a more comprehensive analysis. This report provides an analysis of Elon

Musk's potential acquisition of Twitter using the times-revenue method. The times-revenue

method values a company based on a multiple of its annual revenue, providing insights into its

potential worth. By applying this method, we can estimate the valuation of Twitter and assess the

appropriateness of the acquisition price.

Methodology: To determine the valuation of Twitter, we will use the times-revenue method.

This involves applying a multiple to Twitter's annual revenue and comparing it to the proposed

acquisition price by Elon Musk.

How the Times-Revenue Method Works

The times-revenue method can be calculated forward or backward. In the forward

calculation, the purchase price is divided by the annual revenue to determine the multiple. In the

backward calculation, the annual revenue is multiplied by a desired times-revenue target to arrive

at a potential target price. The times-revenue method suggests that Elon Musk's proposed

acquisition price of $44 billion for Twitter aligns with a times-revenue multiple of 8.7, reflecting
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the company's annual revenue of $5.077 billion. This valuation approach indicates the potential

value of Twitter based on its revenue generation.

However, it's important to note that the times-revenue method alone does not account for other

critical factors such as profitability, growth prospects, and market conditions. Therefore, it is

crucial to consider these factors alongside the times-revenue method to obtain a comprehensive

valuation and make informed investment decisions.

This report demonstrates the application of the times-revenue method and provides insights into

the potential valuation of Twitter in the context of Elon Musk's proposed acquisition. It is

important to conduct further analysis and consider additional valuation methods to gain a holistic

understanding of Twitter's worth.

Data Analysis:

1. Annual Revenue of Twitter: In the fiscal year 2021, Twitter reported annual revenue of

$5.077 billion.

2. Proposed Acquisition Price: Elon Musk intends to acquire Twitter for $44 billion.

Calculation: To calculate the times-revenue multiple and the resulting valuation, we can use the

following formula:

Times-Revenue Multiple = Acquisition Price / Annual Revenue

Valuation = Annual Revenue x Times-Revenue Multiple

Substituting the given values:

Times-Revenue Multiple = $44 billion / $5.077 billion

Valuation = $5.077 billion x Times-Revenue Multiple

Results:

1. Times-Revenue Multiple: The calculated times-revenue multiple is approximately 8.7.

2. Valuation: Based on the times-revenue multiple, the valuation of Twitter would be

approximately $44 billion.

The Factors influencing multiplier Parameter

A company’s valuation can be calculated by assessing numerous factors, as far as the

Time-Revenue Multiple is concerned, this variable is denoted by the term “Mutiplier”. The

various factors affecting the evaluation are mentioned below:

 Performance by Industry and Sector: Growth rates, profit margins, and risk profiles

vary amongst industries. Industries that are expanding quickly or have larger profit margins may

be able to fetch higher multipliers because of their perceived stability and earnings potential.

 Growth Potential: Businesses with promising futures are frequently given higher

multipliers. A higher multiplier is a result of factors that indicate potential future revenue growth,

such as scalable business models, innovative products or services, and opportunities for market

expansion.

 Profitability and Margins: In general, higher multipliers are the outcome of higher

profitability and healthier profit margins. Companies that regularly turn a significant profit

relative to their revenue are frequently valued higher.

 Market Conditions and Trends: The multiplier can be strongly impacted by the state of

the economy, the market, and the perception of the industry as a whole. For example, investors
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may assign lower multipliers during economic downturns or uncertain times because they

perceive more risk.

 Competitive Landscape: The multiplier is influenced by the level of competition in a

given industry. Because they are better positioned to sustain their revenue streams, companies

with strong market positions, competitive advantages, and entry barriers may be entitled to

higher multipliers.

 Operational Efficiency and Management Quality: Businesses that are well-managed and

have solid management teams that can regularly produce results tend to fetch higher

multipliers. A favorable valuation is a result of good governance, efficient cost control, and

operational excellence.

 Stability of Financial Performance: Over time, revenue stability and consistency in

financial performance can have an impact on the multiplier. Businesses that show consistent

revenue growth and a strong ability to withstand changes in the economy may be awarded

higher multipliers.

 Size and Stage of the Company: Due to their perceived higher risk or uncertainty, smaller

businesses or startups may receive lower multipliers than larger, more established companies

with a track record.

Benefits and Limitations of the Times-Revenue Method

The times-revenue method is particularly useful for valuing young companies with

volatile or non-existent earnings. It can provide a valuation range based on the company's

revenue history. However, it's important to note that revenue alone does not guarantee

profitability, and increased revenue doesn't always lead to increased profits. Therefore, the times-
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revenue method should be used in conjunction with other valuation approaches and factors such

as margin, growth trends, and recurring revenue.

Acquisition of WhatsApp application by Facebook

One of the biggest acquisitions in the tech sector occurred in 2014 when Facebook paid

roughly $19 billion to acquire WhatsApp. WhatsApp's yearly revenue at the time was noticeably

lower than the acquisition price. Reportedly, WhatsApp, a messaging app with a large user base

and cutting-edge features, made about $20 million in revenue in 2013. Thus, to purchase

WhatsApp, Facebook paid nearly 900 times the latter's yearly revenue.

Facebook's strategic plan to strengthen its position in the messaging and social networking

industries was the main factor behind the acquisition's exorbitant price. WhatsApp boasts a

rapidly expanding user base, with billions of messages being sent every day by hundreds of

millions of active users. By leveraging WhatsApp's vast user base, Facebook hoped to increase

its own market share and fend off any challenges from up-and-coming rivals. Through the

acquisition, Facebook was able to expand its user base and establish a solid presence in the

global messaging market while also gaining access to WhatsApp's extensive messaging platform.

Facebook valued WhatsApp because of its potential to drive future growth, user engagement, and

long-term revenue opportunities within the changing digital communication landscape, even

though the price tag seemed excessive in comparison to WhatsApp's income.

Conclusion

When determining a company's worth, the Times Revenue Method is a useful first step—

especially for small businesses with scant financial information. But its exclusive reliance on

revenue as a measure of worth may lead to valuations that are overly simplistic. The Times
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Revenue Method must be used in conjunction with other valuation methods that take into

account a company's profitability, market conditions, growth prospects, and other qualitative

factors in order to produce a more thorough and accurate assessment of its value. A more

comprehensive understanding of a company's true value is made possible by combining different

valuation techniques, which helps stakeholders, investors, and business owners make wise

decisions.
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References

Iqbal, Mansoor. “Twitter Revenue and Usage Statistics (2023).” Business of Apps, 10 Aug.

2023, www.businessofapps.com/data/twitter-statistics/.

“Twitter Revenue 2010-2022.” Stock Analysis, www.stockanalysis.com/stocks/twtr/revenue/

Appendix A

Twitter’s Annual User Data Plotting

Twitter Annual Users (mm)

400

350
Monthly users in millions

300

250

200

150

100

50

0
2008 2010 2012 2014 2016 2018 2020 2022 2024

Year

Figure A1: Twitter’s Annual User Data Plotting

Appendix B

Twitter Annual Revenue Data

Fiscal Year End Revenue Change Growth

2021-12-31 5.08 1.36B 36.63

2020-12-31 3.72 257.02M 7.43

2019-12-31 3.46 416.97M 13.71

2018-12-31 3.04 599.06M 24.52

2017-12-31 2.44 -86.32M -3.41

2016-12-31 2.53 311.59M 14.05

2015-12-31 2.22 815.03M 58.09

2014-12-31 1.4 738.11M 111.01

2013-12-31 0.66 347.96M 109.79

2012-12-31 0.31 210.62M 198.11

2011-12-31 0.1 78.04M 275.96

2010-12-31 0.28 - -