Twitter may be hot, but is it really worth $1bn?

Revenue-free website Twitter is about to clinch $100m new funding at a $1bn valuation.

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Last Updated: 31 Aug 2010

A group of big name VCs led by New York’s Institutional Venture Partners are doing the deal, which is Twitter’s second round of funding this year. It raised $35m back in February – when it was valued at a ‘mere’ $250m - so this latest haul at four times the value cements the microblogging site’s position as the hottest gig in town. 

Indeed, such was the fevered level of interest that Twitter’s management – which apparently was only looking for $50m – seems to have decided to double the figure. Not an option which presents itself to many young businesses seeking finance at the moment – especially ones that have yet to make a penny.

Because of course the big debating point between Twitter’s boosters and the sceptics is the fact that the business has not only still to turn a profit – hardly unusual for early-stage firms after all – but that it has not even got a formal revenue stream in place.

Yes, for those of you who have been living off-grid for the past year or so, Twitter’s founders Jack Dorsey, Ev Williams and Biz Stone were unworldly enough not to bother building any obvious means of financial self-support into their new idea. Ironically of course, this refreshing lack of commerciality is one of the main reasons that those who like Twitter, like Twitter in the first place.

So the big question is: can such a business, however smoking hot it may be at the moment, really be worth $1bn? On the one hand there are those who say yes, because Twitter’s potential is so vast – can 43m users and rising fast really be wrong? On the other are those who cite the danger that, unless very niftily executed, turning Twitter cash-positive risks alienating its users and sending them elsewhere for their online chatter needs.

Money-making wheezes apparently being considered at the moment include advertising (radical huh?), selling information and services to corporates, and even revenue-sharing with mobile phone companies (good luck on that one).

And what’s all this new funding for anyway? Twitter's had a whopping total of $150m investment so far, and spent, according to most guesstimates, maybe $20m. So either they have some grand plan for world domination that’s going to cost upwards of $100m to implement, or its canny founders are simply getting while the getting is good.

Who’s right? It’s too soon to tell. For what it’s worth we think Twitter probably will figure out a way of making money whilst hanging onto at least most of its users. But whether it will generate sufficient cash, sufficiently quickly to make it a good buy at that $1bn price tag remains to be seen.


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