Popular microblogging service Twitter is the Silicon Valley equivalent of a Hollywood celebrity that the paparazzi can't stop following. And it doesn't look like that's set to change anytime soon given that the company may be on the verge of raising another massive round of funding.

According to TechCrunch's Michael Arrington, multiple sources are indicating that Twitter CEO Evan Williams disclosed a new $50m (give or take) round of funding at a company meeting. And the valuation for the round will be four times the previous round's $250m valuation. Yes, $1bn.

Improbable? Impossible? Twitter is still a pre-revenue company and many, myself included, question how it's going to build a sustainable business around the millions of 140 character tweets that traverse the Twitterverse each day.

There are a few ways to answer that question. The most obvious is simple: it doesn't need to. The logic goes a little something like this: Twitter is so sexy that somebody (read: Google) will buy Twitter for a huge amount of money. Revenue and profits won't matter. If it seems absurd, that's because it is. But absurdity is a reality in the world of internet startups and given the economic pain of the past year, I for one wouldn't be all that put off by a sliver of irrational exuberance in Silicon Valley.

The reason: sometimes irrational exuberance turns out to be foresight (or good luck). Google purchased a profitless YouTube for a whopping $1.7bn and while YouTube still has its fair share of challenges ahead of it, I think Google has made more progress with YouTube the Business than many naysayers ever expected it would. Then there's Facebook, another notable billion-dollar Web 2.0 upstart. Many questioned whether it could ever build a sustainable business; it appears to be well on its way to doing just that. Independently, no-less -- a real accomplishment.

Obviously, Twitter isn't YouTube and Twitter isn't Facebook. Commercially, it's very much underdeveloped and it faces unique monetization challenges that YouTube and Facebook don't. But that's precisely part of Twitter's appeal in my opinion. Everybody's trying to guess how it can make money -- and how much. All the while the company has taken advantage of its popularity to raise tens of millions in funding at favorable valuations.

If Twitter management can pull off a $50m round at a $1bn valuation, one has to wonder if Twitter's laid-back founders aren't more business-savvy than some think. That will largely be determined by what happens next. If Twitter does raise money at a $1bn valuation, it will have little choice but to seek a billion-dollar exit. Unless, of course, you really believe that it will have 1bn users and $1.54bn in revenue by 2014, in which case you'll be owning shares of TWIT in your 401(k) after Twitter goes public. That seems highly unlikely right now so the question is whether or not Twitter management and current investors are willing to risk pricing the company out of the market for M&A.

Of course, a disclaimer is in order here: this could all just be another Twitter rumor. Michael Arrington's sources aren't always right. But I'll ask the question anyway: do you think Twitter could be worth $1bn? Why or why not?

Photo credit: carrotcreative via Flickr.

Patricio Robles

Published 17 September, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (1)


Professional CV

I think $250M is probably closer to the mark, but even at that level at present as a loss making company, it has an infinte PE ratio. At a $1Bn valuation, then I agree with your logic that it is an exit valuation not long afterwards.

Any valuation is sitting on the believed realisation that it can be sold for that, and at some point forward generate revenue above cost at an approrite PE ratio. Twitter is a media and Silicon Valley darling at present because it attracts volume users through not costing us anything to use or be spammed with adverts. But, both these revenue models, plus statistical market anlaysis, will have to deployed should it wish to realise an owner any valuation beyond a flight of pre-recessionary fantasy.

Any bidder coming in now would want to see a revenue plan, and one which took into account the issue of user flight once that plan was put in place. With so many savvy and high profile users on the platform, I truely think the limits of the ability to charge or advertise is now limited by these high profiel users echoing any level of community disatisfaction of a revnue generation model. The possibility of the media turning against Twitter, orchestrated by the darling high profile users, would be fun to watch!

Good Luck - Best Regards, Ian McA

almost 9 years ago

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