May 5, 2022 - Economy

Don't try to make sense of corporate valuations

Companies around Twitter’s size
Data: Forbes Global 2000, Yahoo Finance; Note: *Market cap is for Darden Restaurants; Chart: Erin Davis/Axios Visuals

Stock market indices are a good guide to broad sentiment, but individual valuations can be much more idiosyncratic.

The big picture: The acquisition of Twitter by Musk has thrown into sharp relief companies' seemingly arbitrary valuations, and the way in which a soaring share price doesn't necessarily mean a stratospheric valuation.

By the numbers: Twitter, Domino's Pizza, and Caesars Entertainment all have roughly the same annual revenues.

  • Twitter has been the laggard in the stock market — since September 2014, its stock has fallen by 3%. Meanwhile, Domino's stock is up by 357%.
  • Caesars shares, a bit of a special case, have risen by 1,470% over the same time frame — a testament to the way in which the holding company managed to outmaneuver creditors of its main operating subsidiary, which filed for bankruptcy in 2015.
  • In terms of market capitalization, however, underperforming Twitter is still worth substantially more than Domino's and Caesars combined. It's also the most valuable company of the three in terms of enterprise value.

Why it matters: The stock market is very noisy. Airbnb has lower revenues than Twitter, but is worth well over twice as much, even with its share price going largely sideways since it went public in December 2020.

The bottom line: Corporate valuations can be highly arbitrary.

  • Musk made that explicit when he chose a takeover bid price for Twitter — $54.20 per share — that doubles as a marijuana joke.

Go deeper: Elon Musk's Twitter cash crunch

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