Some investors, analysts and myself are wondering if another dot-com bubble with high-flying valuations of social networks with questionable or unsteady revenue models is being created.

Facebook has yet to live up to all of the hype that it received before going public. Is Twitter next?

The simple economics of Twitter’s $13.6 billion valuation

Let’s do some back of the napkin math together.

Twitter’s 3rd quarter revenue was $169 million. There are 230 million active monthly users. In other words, Twitter made $0.73 for every active user during the 3rd quarter. Annualized, revenue is $2.94 per user per year.

The new IPO price range of $23-25 values Twitter at up to $13.6 billion. At that price, Twitter needs to make $59.13 per user per year.

The market is valuing Twitter at 20 times more than they make!

To be fair, estimates place Twitter’s 2014 revenue at $1 billion, placing the value at 13.6 times revenue, which is certainly more reasonable. But will marketers keep increasing ad spend on Twitter and justify a multi-billion dollar valuation?

Forrester Study: Only 55% of marketers are happy with Twitter

Forrester recently asked marketers how satisfied they are with the value that they have achieved via various marketing channels including Twitter. See the complete results below.

Marketers not satisfied with Twitter

Twitter scored lower than Google Plus! Marketers even find more value in a branded blog, which is cheaper.

Part of the problem is the user experience

Social networks are designed around connecting friends, family and individuals of similar interests. For example, I use Twitter for real-time news and articles from trusted sources. I am not in a buying or purchase consideration mind-frame at that moment. In other words, the ad is reaching me at the wrong time. The ad provides no value to me and therefore none to the advertiser.

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Google’s ad revenue model, on the other hand, makes so much sense because it serves ads when I am searching for products and services. My brain is literally in shopper mode.

I’m rarely in shopper mode when using a social network. The user experience, therefore, has to be tailored to how consumers use social networks.

And social media advertising, so far, does not generally provide value to consumers or solutions to a consumer need. And marketers are realizing that more and more.

Now before you start calling me a hater

Let me say that I love Twitter. I see a lot of the value that Twitter brings to society (it’s helped topple governments).

However, you combine the fact that Twitter has to increase earnings per active user from $3 to $60 and marketers find more value in a score of other options including YouTube, which has struggled to be profitable, and you have to ask yourself if we are creating another stock market bubble.

I hope not. But then again, eToys was supposed to be a big success.

[box type=”note” icon=”none”]Update [Nov 10, 2013]: Twitter went public on November 7th at $26 a share quickly jumping to a high of $50.10 during the first day of trading. The price fell, though, to about $45. At that price, Twitter is valued at $24.4 billion or about $106.08 per active user. Remember, Twitter currently makes $2.94 per user per year.[/box]