Twitter “Worth” $ 3.7 Billion

At least that’s what its venture capital funders think:

The value of Twitter Inc., the website that allows users to send 140-character messages called “tweets,” has nearly quadrupled in the past year, according to a new investment made in the San Francisco start-up.

Twitter said Wednesday it raised a round of funding that valued it at $3.7 billion, becoming the latest young Web company in which private investors put a multibillion-dollar worth on the operation.

The rich valuation comes despite the fact Twitter is still working on ways to translate its more than 175 million registered users into a profitable business.

“There’s no question that price is well ahead of any analysis of Twitter’s business today,” said Josh Hannah, a partner at venture firm Matrix Partners

So, what exactly, is Twitter’s revenue model? Right now, it seems very limited:

Twitter will draw just under $50 million in ad revenue in 2010, according to research firm eMarketer. That figure doesn’t include fees Twitter receives annually from Google and Microsoft Corp. to show tweets to users of their search engines. People familiar with the matter say Twitter earns millions of dollars a year from such fees.

As Professor Bainbridge notes, that gives us a Price/Earnings ratio of 74, assuming every dollar of revenue went straight into earnings which, of course, it doesn’t. It is, as he says, the dotcom era all over again.

FILED UNDER: Economics and Business, Quick Takes
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Brett says:

    I don’t get it either. It’s not like Twitter is some brand new company that is trying to expand use of its service before monetizing it, because the company has been in existence for more than four years and has over 100 million users. Even Facebook was making some money by the four-year mark (although Facebook still isn’t particularly profitable), but Twitter doesn’t even have a business model yet.

    Barring some miraculous monetization effort, I suspect the company is going to go through a bottleneck in the near future where it almost goes bankrupt.

    It is, as he says, the dotcom era all over again.

    I don’t think things have sunk that low – yet. Some of the new Social Web start-ups getting funding are silly, but it’s not quite the gold-rush that the Dot.Com Bubble was in the late 1990s. The amounts being given to most companies by angel investors are pretty small.