Inflated Salaries at Twitter a Red Flag: Om Malik

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Oct. 3 (Bloomberg) -- GigaOm's Om Malik, Bloomberg Contributing Editor Paul Kedrosky and Bloomberg's Jon Erlichman discuss Twitter's S-1 IPO filing and outlook. They speak with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

We've been talking about spending.

Twitter is in talks to lease the office next door, potentially doubling its office space.

We are told that could be $18 a year.

What do you make of the money this company is spending?

Real estate is very expensive in san francisco.

From that standpoint, they're doing the smart thing.

The big number which they need to watch for is that this is a company spending a third of its revenues on r&d, which includes paying for talent, which tells me there is a lot of inflated salaries built into the cost structure.

To attract good talent, they have not only made pay top dollar, but they have paid higher at top dollar in the market.

He has tripled the workforce since becoming ceo, and wooed a number of high-profile people from google.

I guess that takes money.

Yes.

That is where we should be keeping an i out on that.

-- eye out on that.

That is a good red flag to have.

A successful company with a huge r&d budget, they don't spend a third of their revenue on stuff like that.

Facebook r&d is between 10% to 12%. they are spending a lot on talent, which is the right place to spend money on when your business is software and code and data analytics, but that is a big number.

If they don't get that number under control, this company has some issues.

Twitter has not specified which exchange a will trade -- it will trade, although has said it will trade under twtr ticker.

What sort of valuation are we looking at for this company?

They are being pretty sketchy about telling us exactly what they're going to do.

What has happened in the secondary markets, when the company is hitting above $10 billion capitalization.

While you don't want to be completely driven by that -- that was one of the mistakes that facebook made, and then they had to trade accordingly -- what you are probably looking at is if you say, with google eight times price sales, facebook was absurd at 23 and linkedin was in the middle.

If you say 14 or 15 times sales, you're probably looking at a $15 billion-ish market cap.

That's a pretty good place for investors to look.

If it comes in ahead of that, that is something to be concerned about because it's not supported by the numbers we see from the company.

Twitter aiming to raise $1 billion.

I want to talk a little bit about the stakeholders involved here.

Jack dorsey, four point nine percent carried all three of twitter's founders were together at twitter's headquarters earlier today.

Jon erlichman, you been taking a closer look at the ownership of this company.

How do the numbers break down?

When you love to be a fly on the wall in one of those twitter board meetings -- wouldn't you love to be a fly on the wall in one of those twitter board meetings?

These people have skin in the game.

He is on the board of directors and involved in is key, large strategic thinking ideas for the company.

They costilla -- dick costolo calls the ultimate shots.

All of these substantial holders.

If to draw ski is right and we're talking about a company valued at $15 billion, if you own 12% of that, or 4.9% as jack dorsey does, those are some big numbers.

The other side of this is what you always learn, peter frampton of benchmark capital, the early investors in big hits like twitter are the reason why there are so many venture capitalists chasing that next big idea.

Whether it is our capital or benchmark or union square, all with substantial stakes in this company that are ready to enjoy a windfall.

We will see what happens in terms of the ipo.

The lesson learned from facebook is you did see a lot of selling.

I feel like this is a good opportunity to talk about the road that twitter has taken to get here.

There have been a lot of twists

This text has been automatically generated. It may not be 100% accurate.

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