Why did Twitter (X) valuation rise 56% in a year? -Gudstory

The company formerly known as Twitter values ​​X at $19 billion, according to internal documents obtained by Fortune. When Elon Musk bought the company a year ago this week, he paid about $44 billion, or $54.20 per share, for the microblogging platform.

This internal valuation shows X’s value is down about 56% over the last 12 months, which doesn’t look too good. There are certainly many explanations for why Twitter’s value has halved, such as how the platform has spent the last year eroding global brand awareness, firing journalists and aiding impersonation. Still, a single number rarely tells the whole story of a company, especially when company valuations can be so arbitrary. Depending on who is calculating a company’s valuation – a venture capitalist, a government auditor or an egotistical billionaire – the resulting numbers can vary considerably. For example, Fidelity has reduced its investment in X by 65%.

The company, which was taken private with Musk’s purchase, is now offering restricted stock units (RSUs) to employees at a share price of $45. When private companies offer stock-like compensation options, the IRS recommends companies use a 409A valuation, which is an independent assessment of how much a company is worth. But these valuations tend to be more conservative than those estimated through new venture funding, for example.

Because of this, it is not unusual to see companies’ valuations decline after a new 409A valuation. Last year, Stripe and Instacart saw their valuations cut by 28% and 38%, respectively.

EquityZen, a company that expands access to investing in private markets, has consistently seen these trends among private tech companies.

“At EquityZen, we have seen shares of private pre-IPO tech companies trade at an average discount of 49% to previous funding rounds,” Phil Haslett, founder and CSO of EquityZen, told TechCrunch. Haslett doesn’t see the decline in X’s valuation as a surprise, although he says the speed of this decline – just one year – “raises some concerns.”

Haslett said that a company’s common stock (or, a type of equity compensation given to employees) may also be priced at a discount because the company is not public.

“Since there is no active liquid market for the shares, the company could argue that the common stock is worth less than the $44 billion price tag,” Haslett told TechCrunch. “This actually benefits employees: They’ll likely get more stock (or at least, stock options with a lower strike price).”

It can be seen as a win-win for both executives and employees when their company receives the 409A valuation, as it makes it less expensive to grant stock options to employees. This also makes it easier to recruit talent.

“409A valuation determines the tax basis for stock options,” Alex Ross, founder and CEO of plant care app Gregg, told TechCrunch. As the head of a private startup, he requests a new 409A appraisal about once a year. “At a $19 billion valuation, Twitter employees pay less tax when exercising options than at a $40 billion valuation.”

But even though this may benefit employees in the short term, the platform will still need to recoup its lost value if its “hardcore” employees ultimately reap the windfall.

So, is it worrying that X is claiming a valuation of $19 billion? Yes, but it may not be as worrisome for the people who work there.