how sick is this? A company that had already raised north of 300 million and had never even made half as much in revenue gets... another 800 million? what for? how ridiculous is this?
I think you answered your own question. Without revenue, outside capital is needed for growth. And it's tough to tell if the valuation is dumb without seeing the terms of the deal.
What's even more ridiculous is that they did it even though there is now a competitor with a better product. Yes they have a much larger installed base but I do believe G+'s non 140 char limit and other amenities will win out.
$8B is still in the acquisition range.
Google was ready to pay $6B for Groupon.
The next round (if ever) will make twitter un-acquirable.
IPO, lower valuation or die.
It doesn't. It's just an implied valuation based upon simplistic math.
For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rate (say its 7%). That investor makes good money if Twitter gets sold for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment going negative is quite low (relatively speaking), as would be the investor's cost of capital. I doubt the seed investors would look at such a sale positively.
That is a grossly oversimplified version of what can happen (I have no idea what the terms of the real investment are - I'm just making up a for-instance). But the larger point is that you are correct, when you are dealing with preferred stock and other complicated securities, the implied valuation is a bit of a joke. You have to look at the value of all of the various tranches of securities, each of which is impacted by the others.
layman: the 800M$ funding & 8B$ valuation numbers affect each other. It woulnd't be raising 800M$ if not valued at 8B and it wouldn't be valued at 8B$ if the funding round wasn't 800M$
They value the entire chunk, then base the 10% on it. Your question makes it sound as if they said 10% is worth 800M, then 90% is worth 9 times as much. The logic would be 100% cost 8B, so 10% cost $800M.
You know, if you could get 800M$ who cares about revenue? They are getting money while they can before the bubble burst, the early investors are getting money selling to a greater fool and the greater fool are putting money over the table betting someone else will be even bigger fool.
Facebook is profitable but "not that profitable", they need to be much much more profitable at the current valuation, that means being pure evil, and I don't know if the people will stand that.
The Facebook, Zynga, Groupon burst will be something great to see, again(it seems people just can't learn from the past, "this time is different").
It must at least partly be due to the fact that Twitter has been guarding the simplicity of its product. Facebook is a communications platform at its core, but it also allows third-party developers to use it just as an identity database on its own property. You can run games on Facebook.com, you can't on Twitter.com.
The simplicity of Twitter has also made them discourage third-party development off their property. If all you've got is a SMS broadcasting service and you have an open API, it's not so hard for others to clone all your features and more. It's not as easy to clone Facebook because it has a lot more functionality. So that has limited Twitter's off-site monetisation options.
Twitter is similar to Facebook in the sense that people spend a lot of time on it, but for some reason (good for users, bad for short term profitability), Twitter has not added any Facebook-style display advertising on its website.
Now, this guarded simplicity exists in another internet giant - Google search. You cannot really make any third-party products on top of it and you're unlikely to see flashing banner ads there any time soon. But, Google has intent, which means Adsense works great. While Twitter doesn't have as clear an intent signal, an Adsense-like product on it won't be a big surprise.
The simplicity of Twitter as a social network gives it a lot of pace. Stories, trends, memes move fast on Twitter. So, it's hard for advertisers to capitalise on any particular theme for long or at the right time. But, I expect they will churn out more brand management and marketing tools for big companies. That's what I guess Twitter's major source of revenue will be (big deals), rather than self-serve ad platforms for small to medium companies like Facebook and Google.
Facebook is profitable, yes. Most of people (edit: instead of most I said '99%' but that's not true so I updated) use FB from their browser going to facebook.com (or searching facebook on Google and clicking the first link), while Twitter is used mostly in desktop/mobile apps.
It's a bit more difficult to develop a business model for Twitter than for Facebook, which is profitable with "just put ads on the right of everypage".
Why try and achieve something hard like profitability when you can easily be valued at $8b and raise $800m to keep that going?
I don't mean to be too critical but sometimes I wonder if this is better than, say, Twitter finding out that it can't make more than some small amount of money in profit.
Twitter's data set is incredibly valuable; Twitter won't make money from ads, they will make money from analyses of their data [1]. Developing infrastructure and software that can analyse the sheer quantity of data Twitter generates takes time — and money. But, when they finally crack it they will be extremely profitable. It's much easier for Twitter to do this opposed to Facebook (who I would say is also interested in doing this) because of Twitter's public by default culture (/policies).
[1] If evidence is needed: they just bought BackType; They're starting to lock down and sell their APIs rather than give it away for free as they realise the data's immense value.
They said the valuation of Twitter doubled from last year to this.... does anyone know if the shares in SecondMarket increased by the same % as well? If not.. then why not? They don't want "normal people" to get rich? Just the insiders?
That's roughly how it's meant to work pre-IPO. Until they're a public company they're only supposed to care about the investors they chose ("the insiders").
[+] [-] dotcoma|14 years ago|reply
[+] [-] damoncali|14 years ago|reply
[+] [-] derrickpetzold|14 years ago|reply
[+] [-] nivertech|14 years ago|reply
[+] [-] vaksel|14 years ago|reply
[+] [-] nodata|14 years ago|reply
[+] [-] damoncali|14 years ago|reply
For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rate (say its 7%). That investor makes good money if Twitter gets sold for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment going negative is quite low (relatively speaking), as would be the investor's cost of capital. I doubt the seed investors would look at such a sale positively.
That is a grossly oversimplified version of what can happen (I have no idea what the terms of the real investment are - I'm just making up a for-instance). But the larger point is that you are correct, when you are dealing with preferred stock and other complicated securities, the implied valuation is a bit of a joke. You have to look at the value of all of the various tranches of securities, each of which is impacted by the others.
[+] [-] barredo|14 years ago|reply
[+] [-] rokhayakebe|14 years ago|reply
[+] [-] gabaix|14 years ago|reply
[+] [-] forgottenpaswrd|14 years ago|reply
You know, if you could get 800M$ who cares about revenue? They are getting money while they can before the bubble burst, the early investors are getting money selling to a greater fool and the greater fool are putting money over the table betting someone else will be even bigger fool.
Facebook is profitable but "not that profitable", they need to be much much more profitable at the current valuation, that means being pure evil, and I don't know if the people will stand that.
The Facebook, Zynga, Groupon burst will be something great to see, again(it seems people just can't learn from the past, "this time is different").
[+] [-] revorad|14 years ago|reply
The simplicity of Twitter has also made them discourage third-party development off their property. If all you've got is a SMS broadcasting service and you have an open API, it's not so hard for others to clone all your features and more. It's not as easy to clone Facebook because it has a lot more functionality. So that has limited Twitter's off-site monetisation options.
Twitter is similar to Facebook in the sense that people spend a lot of time on it, but for some reason (good for users, bad for short term profitability), Twitter has not added any Facebook-style display advertising on its website.
Now, this guarded simplicity exists in another internet giant - Google search. You cannot really make any third-party products on top of it and you're unlikely to see flashing banner ads there any time soon. But, Google has intent, which means Adsense works great. While Twitter doesn't have as clear an intent signal, an Adsense-like product on it won't be a big surprise.
The simplicity of Twitter as a social network gives it a lot of pace. Stories, trends, memes move fast on Twitter. So, it's hard for advertisers to capitalise on any particular theme for long or at the right time. But, I expect they will churn out more brand management and marketing tools for big companies. That's what I guess Twitter's major source of revenue will be (big deals), rather than self-serve ad platforms for small to medium companies like Facebook and Google.
[+] [-] barredo|14 years ago|reply
It's a bit more difficult to develop a business model for Twitter than for Facebook, which is profitable with "just put ads on the right of everypage".
But: shouldn't a company as huge as FB be many times more profitable that they are right now? (400M$ in profits in 2010: http://dealbook.nytimes.com/2011/01/06/goldman-unit-passed-o... at a 75B$ valuation if I recall correctly).
Anyway, my point is Twitter & FB business models are not & i'd guess won't even be similar, and it'd difficult to compare them.
[+] [-] kloncks|14 years ago|reply
I don't mean to be too critical but sometimes I wonder if this is better than, say, Twitter finding out that it can't make more than some small amount of money in profit.
[+] [-] benofsky|14 years ago|reply
[1] If evidence is needed: they just bought BackType; They're starting to lock down and sell their APIs rather than give it away for free as they realise the data's immense value.
[+] [-] swombat|14 years ago|reply
[+] [-] Hisoka|14 years ago|reply
[+] [-] corin_|14 years ago|reply
[+] [-] kirubakaran|14 years ago|reply