Is Twitter set for a ludicrously gigantic pay day? The Wall Street Journal reports today that the trendy micro-blogging site has apparently been in ‘low-level talks’ (whatever that means) with Facebook and Google about selling up - and supposedly, the valuation could be as high as $10bn (£6.2bn). It wouldn't be the first tech company to sell at an overheated price, but that's still a staggering sum for a company that makes hardly any money. And although you can see what's in it for Twitter, the attraction for Facebook particularly is a little harder to understand...
The Journal, citing that old favourite ‘people familiar with the matter’, reckons that both Facebook and Google are both making eyes at Twitter - and in some ways it would be surprising if they weren't, given that the service now boasts more than 175m registered users. But the kind of sums apparently under discussion are huge even by Twitter's standards; before Christmas it raised $200m from US venture capital firm Kleiner Perkins Caufield & Byers, which valued the firm at about $3.7bn. Can it really be worth more than twice as much a couple of months later?
What's even crazier about this eleven-figure valuation is that Twitter has only just started to generate revenue, let alone turn a profit. It doesn't actually publish financial information at the moment, but according to those trusty people familiar with the matter, it made revenues of $45m last year via ‘sponsored tweets’; it expects to see that rise to somewhere between $100m and $110m next year. But it's still apparently loss-making.
Of course, ridiculous valuations aren't exactly unheard of in the technology sector. Facebook was valued at $50bn during its most recent round of fundraising, and when Goldman Sachs attempted to offer some of its favourite customers the chance to invest in January, it caused the Wall Street equivalent of a riot. Groupon's just announced plans for an IPO, after turning down a $6bn offer from Google. And news website The Huffington Post has just been bought for a whopping $315m by AOL.
Still, this is an extraordinary price tag. Its advertising business is still pretty embryonic, and it's not clear what its other revenue options are. A Facebook tie-up in particular sounds like a long shot; a deal this size would run contrary to Facebook's previous acquisition strategy, and it's not obvious that the benefit would be sufficiently large.
Google looks the better bet; it has billions of cash in the bank, and has struggled to get a foothold in social media. It would also work well for Twitter; if it wants to make money from online advertising, there's no better authority than Google - and with the latter's technical resources, it might make the much-hated Twitter 'fail whale' a less common sight. But at $10bn, Google would need a lot more faith in Twitter's financial prospects than we have.