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Twitter Raises $200 Million at $3.7 Billion Valuation; Adds New Board Members
- faramarz 16y agoBelow is my tweet in reaction to the news. Hopefully someone can justify this growth capital for me. Nobody is directly competing with you @Twitter. What the hell is the rush that you need $200mm for?? This is a goddamn #bubblebath
- mgrouchy 16y agoI imagine its a raise the money while people are offering it kind of thing. With twitter(as with facebook), its been a race to a business model and profitability, you have some money if you want to keep the lights on.
- rbranson 16y ago... also a race against time. You can only capture and hold people's attention by doing the same thing for so long. They will need to continuously evolve their product to attract new users and also keep existing ones. Twitter's valuation is based on their unrealized potential, not because they're a cash cow. Without funds to ensure continued, rapid growth, they'll never realize it.
- axod 16y agoLots of things compete with twitter (and beat it by miles). Instant messaging apps - AIM etc do far higher volume of messages. IRC does. Facebook does. Sure, it's not apples for apples identical, but can you imagine ICQ being valued at this price?
- nivertech 16y agoICQ had low valuation because it was not popular in US. It had 2 reason for discount: 1. Users mostly international: Europe and Russia 2. Israeli-based - for two absolutely identical companies one in SFBA and one in Israel - the Israeli will have ~ 30% discount.
- nir 16y agoQuestion is, in the ~13 years since, was ICQ worth its $400m price? Is Twitter really worth x2.5 that?
- yayadarsh 16y agoDoes ICQ have potential uses in the multi-billion dollar corporate marketing industry?
- nir 16y agoDepends what potential uses you're referring to. If it's context-sensitive advertising, ICQ did have (has?) ads and supposedly could match an ad to a message text or a user's history.
- robryan 16y agoIt's still only traditional advertising, the thing about Twitter is it has the ability to make people forget they are bing advertised at. People follow company account on Twitter very willingly and receive a stream of what would be considered advertising from the company right mixed in with everything else they are doing. The ICQ equivalent would be to have someone like starbucks open up a chat with users and still manage to somehow retain the users.
- nir 16y agoFair point - but, this relies on the user actively using Twitter over some time, which seems like the minority. Couldn't companies achieve the same with Facebook pages, which seem to have a larger and more devoted audience?
- robryan 16y agoYeah, at the moment though Twitter has more potential in this area. They are seen as more of a broadcast platform whereas on Facebook the pages are tacked on to a platform for more personal communication between friends. Certainly though I see this growing on Facebook to, I don't think there is only room for one game in town here though, so far companies have been happy to work across both platforms. Depends a lot on Twitters future user retention and engagement I guess.
- ceejayoz 16y ago"Sure, it's not apples for apples identical" It's not even apples for oranges, it's apples for penises. Volume is hardly a good metric for valuation.
- axod 16y ago> "Volume is hardly a good metric for valuation." Right. Fashion is. This is a 'twitter is fashionable' valuation.
- T_S_ 16y agoProbably some cash out for the founders and very early investors. And some more dev. Maybe a lot more. Nothing to get upset about.
- nir 16y agoSeems to me Twitter's shareholders are doing the smart thing - converting transient hype for lasting cash.
- axiom 16y agoI'm probably just ignorant, so I'd really be interested in hearing what those with expertise have to say. At a $3.7 billion valuation doesn't that mean that twitter has to IPO or be bought for at least $10 billion to make it worth it? and aren't those exits exceedingly rare? I'm sure people investing $200million aren't idiots, so it's not like this logic is lost on them, so I'd be really interested in what the investment terms are to make this a sensible deal.
- evgen 16y agoBasically you are correct, although the existence of secondary markets and the greater-fool theory means that investors will probably be able to hedge their bets prior to IPO. OTOH, for a service whose growth is stalling this is a pretty bold bet for participants in this round.
- jackowayed 16y agoGiven its popularity, do you really think Twitter is going to exit for less than $10B? Those exits are rare, but so is the position that Twitter is in.
- axiom 16y agoWell, couldn't that same argument have been made about Friendster, or MySpace, or Digg etc.? I don't know what the odds are, but surely there's at least a 25% chance that twitter will fizzle out. So it's 25% chance of nothing, and 75% chance of, say, a 3x exit. I dunno, that seems crazy risky to me. Someone commented below about the secondary market - that actually makes a lot of sense I think. I guess when you're investing in twitter there's enough liquidity in the secondary market that you can probably get out if you need to.
- Complete 16y ago"25% chance of nothing, and 75% chance of, say, a 3x exit. I dunno, that seems crazy risky to me" If these are the odds, the expected outcome would be that you more then double your money. 25%0+75%3=2.25
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- bcrescimanno 16y agoThough I may simply be ignorant to their plans, I have yet to see compelling evidence that Twitter really knows how on earth it can really monetize itself. My guess (as I said in an earlier Tweet) is that the network itself is worth millions of dollars to businesses (quite likely even more than the $3.7 billion valuation) but I don't see how it translates into real revenue for Twitter, the company, as operator of that network. One of the things that's always amazed me about Twitter is that with everything the company has done to make a really cool service, they seem to be in the absolute worst position possible to actually monetize that service.
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- nir 16y agoDamn, gotta open CNN to see what people are tweeting about this!
- ohashi 16y agoCongrats to them, hopefully we see some good features (more stability) and a business model that doesn't piss everyone off and kill it :)
- mmaunder 16y agoThere's an assumption that people who invest $200 million have information you don't have or that they're smarter than you are. I worked for eToys and watched the company simply run out of money after raising $250 million. I worked for Jobster and watched the company become walking dead after raising $55 million. The Madoff investors are also a prime example of what economists call "asymmetric information" at work. There is an odd inverse correlation where the larger the deal, the less insider info the investors have. Today Twitter burns cash at a furious rate, has only 25 million uniques on their website, has a product riddled with bugs, has a terrible uptime record and after years of trying to scale, continue to have terrible uptime and app performance. But most important of all: Twitter do not yet have a business model, and the experiments they're doing, like the groupon twitter clone, demonstrate that they are flailing around in the dark. It's quite possible that Twitter may go the way of eToys.com and other big busts: After raising a spectacular amount of money they will simply run out of cash and have their assets bought for a pittance. So lets explore this scenario briefly: If twitter does simply implode, it will be catastrophic for our industry because the press will brand it as a wider systemic problem and will most likely describe it as the "second dot-com bubble bursting". The mainstream press have been particularly kind to Twitter, so expect them to be just as unkind if it dies. VC and angel money will dry up for a time and the correction that guys like Fred Wilson have been predicting (see his recent comments re an angel investment bubble) will come to pass. Lets hope Twitter becomes profitable and sustainable or we will all be hurt badly by the shrapnel.
- mikeryan 16y agoI'm not sure Twitter is burning money as furiously as you think. Last year they claimed they were cash flow positive[1] just on firehose deal worth $25M a year. I'm not saying they are worth 3.5B but it looks like Twitter is setting themselves up for a really long runway before they would crash [1] http://www.businessweek.com/technology/content/dec2009/tc20091220_549879.htm http://www.businessweek.com/technology/content/dec2009/tc200...
- mmaunder 16y agoI'm not sure either, but here's some data: Employees: 350 (Source: Forbes, Dec 15th, 2010) Avg salary, lets assume 80K. (probably too low) TCO per employee $110K $110K * 350 = $38.5 Million per year on employees. They've been paying NTT for managed hosting thus far - so much that NTT has cited it as a reason they're expanding their hosting network. They're about to open their own data center in Sacramento - probably because they're realizing how expensive NTT is. My guess is they could be spending as much as $30 million per year on hosting and infrastructure. Add another $10 for office, admin and legal and you've got a burn rate of just under $80 million per year or $400 million over 5 years.
- ryanwanger 16y agoAn interesting aside: plenty of people (myself included) have been saying things like "the people at Twitter can't figure out how to monetize". This is true but it assumes that there is some easy monetization, they just haven't discovered it. Yet - I haven't heard anyone else come up with a reasonable plan to do so, and it's not like twitter doesn't have thousands of people who are intelligent, experienced at this, and want desperately for them to succeed. Sure it might look like they are flailing, but lets not keep implying that it's because they don't know what they are doing, don't have the right people in charge, aren't savvy enough to figure it out, etc.
- lotusleaf1987 16y agoIf Google was willing to pay $6 Billion for Groupon, how is Twitter not worth more? That's a serious question, not a snarky one.
- tertius 16y agoGroupon has revenue of at least $500 million.
- lotusleaf1987 16y agoTrue, but shouldn't Twitter have more potential future earnings than Groupon?
- JeremyBanks 16y agoHow do you figure? Twitter seems like a pretty typical example of a tough-to-monetize service, whereas Groupon is already outrageously profitable.
- ddemchuk 16y agogroupon's business revolves entirely around selling things, with limited social aspects to make it enjoyable. Twitter is literally the exact opposite. There's no clear way to monetization for them.
- lotusleaf1987 16y agoThanks for that answer. I understand this, but I just keep thinking why can't Twitter just but a few display ads like Facebook to monetize?
- ddemchuk 16y agofacebook has ridiculously useful demographic targeting information. Twitter is a little bit more messy and it would be trickier to target as accurately, so the value is less there
- ddemchuk 16y agoReading this makes me lose all faith in business, startups, and humanity in general. 5 years later and they aren't profitable, aren't stable, and aren't really innovating anymore. It's like they're dying to become the pets.com of the late 2000's
- newmediaclay 16y agoLooking at Costolo's blog post, I was shocked to see they only have 350 employees! Each employee represents $10 million in valuation.
- nl 16y agoI'm currently find this discussion ignorant and annoying. People are claiming a $3.7 B valuation implies a $10 B exit, and that this is absurd somehow, so therefor the VC's must be stupid. Here's the Math so you can understand the logic. Google claim they can make $10/year from advertising, per user on Android phones[1]. Current speculation is that Facebook is on course to make around $1.6 B from 500 million users this year (ie, $3.2/user/year)[2]. If Google and Facebook can do this, than surely Twitter can make a comparable number - but lets say $2/user/year to be conservative. Twitter has ~150/million users, so they should be able to make around $300M/year. Google's P/E is ~20, but they are a mature company, and Facebook seems to be trading at a P/E of ~50. For out estimates we'll split the difference and give Twitter a P/E of 30. 300M * 30 = $9 Billion. People seem to think that Twitter can't make any money from advertising. In my view, this is a pretty extraordinary claim - everyone else can make money, so why can't Twitter? They actually have a lot of advantages (eg, desktop & mobile installs) that most websites don't have. Many companies pay to be included on toolbars etc that end up on people computers, and yet to here people here talk you'd think having millions of people install your thick client is a disadvantage! [1]http://blogs.computerworld.com/17099/google_says_android_already_breaks_even_will_be_a_10_billion_business http://blogs.computerworld.com/17099/google_says_android_alr... [2]http://www.marketingpilgrim.com/2010/09/facebook-revenue-estimates-continue-to-rise.html http://www.marketingpilgrim.com/2010/09/facebook-revenue-est...
- elvirs 16y agoThe fact that Twitter revealed a online form to buy ads at the same time with closing new round of financing says a lot. for me it says that twitter is desperately screaming: 'please, dont call us money burning losers. there is a possibility for us to make money, look we even have a online form to buy ads' :)
- kayoone 16y agoStop talking about profits. Twitter creates value for millions of users, they will figure out how to monetize those users. If you put profits above all, it will slow you down. People were saying the same things about Facebook and they figured it out. Same for Youtube, same for Google, etc etc. Twitter is a 4 year old company, there are thousands of companies that dont make any profits in their first 4 years, it even took Amazon 7 years to be profitable.