While Twitter isn’t rushing to go public like some of its larger peers, the microblogging service has no problem luring deep-pocketed investors.
Twitter is in the process of raising $400 million in a deal that values the company at $8 billion, according to two people briefed on the matter.
The financing round, which will be split into two portions, will be led by DST Global, the investment firm headed by the Russian billionaire Yuri Milner. Previous investors, including the venture capital firm Kleiner Perkins Caufield Byers, will also participate, one person said.
A Twitter spokesman declined to comment.
With more than 200 million accounts, Twitter, based in San Francisco, is part of an elite group of social Web start-ups that have flourished in recent years by rapidly attracting users. While peers like Groupon and Zynga are now hurtling toward the public markets, Twitter is holding back.
“I think they’re still trying to find a way to make it into a big business,” said Rory Maher, an analyst for Hudson Square Research.
According to his analysis, the company makes about $200 million a year from online advertising and is close to profitability. At those levels, Mr. Maher said, a valuation of $8 billion — or roughly 40 times sales — is difficult to justify.
By comparison, Zynga, the popular online gaming company, recorded $597.5 million in revenue last year, with a profit of $90.6 million, according to a recent regulatory filing. The company, which has filed to go public, is expected to offer its shares at a valuation near or above $20 billion, which amounts to around 33 times sales.
“It’s a small business,” Mr. Maher said, describing the economics of Twitter. “The ad volume isn’t there. They’re going to have to come up with products that drive more volume for them, and they need to increase the number of users.”
At present, Twitter makes the bulk of its money from an advertising platform that features “promoted tweets.” The program, which was rolled out in April 2010, displays sponsored messages in users’ feeds or keyword searches. For instance, a recent search for “Pepsi” generated a message about a current summer promotion, paid for by PepsiCo.
Founded in 2006, Twitter is also adjusting to a recent management reshuffling. Dick Costolo — a former Google executive who was Twitter’s chief operating officer — ascended to the chief executive job last October. Several months later, Jack Dorsey, who initially came up with the idea for Twitter and was its nonexecutive chairman, became head of product development.
Mr. Dorsey, who is also the chief executive of Square, a mobile payments start-up, has been working closely with Mr. Costolo to improve Twitter’s platform.
Despite its challenges, the company is attracting investor capital, at increasingly ambitious valuations.
In December, Twitter raised $200 million, from Kleiner Perkins Caufield Byers, Spark Capital, Benchmark Capital and Union Square Ventures. The investment back then valued the company at $3.7 billion.
Article source: http://feeds.nytimes.com/click.phdo?i=8b450d8b1eef18343220a77c715854e8
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