The Little Blue Bird Flies Up, Up, Up !

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The tech bubble seems to be getting bigger and bigger, thanks to the humongous Zynga and Groupon IPOs. In such a hot and happening environment Twitter goes the opposite direction. Rather than go out to the public, it has decided to tap private investors.

Twitter Inc., the micro-blogging site that lets users post 140-character messages, is raising funding that values the start-up at about $7 billion.

The fast-growing Internet messaging service is currently in discussions to raise a new round of private financing, said people familiar with the matter. The round could yield hundreds of millions of dollars and value Twitter as high as $7 billion, one of these people said. It is unclear which investors are participating in the new round.

Time

Twitter is now valued at a whooping $7 billion. This is the second valuation within one year.

The companies newest valuation comes after executives for the worlds second largest network raised an additional $200 million during this recent round of fundraising, which happened only seven months ago. The valuation of $3.7 million was led by venture-capital firm Kleiner Perkins Caufield & Byers.

The start-up was pegged at about $1 billion in 2009, a person familiar with the matter said at the time. SharesPost Inc., an exchange for shares of closely held companies, has assessed Twitters current worth at $6.8 billion.

The new valuation has some industry analysts scratching their heads over the companys valuation which takes into account just $150 million in expected revenue for 2011.

It is well noted in the industry that Twitter is searching for a business plan and an identity. However, it seems that it is on the right track. This valuation would help its growth.

Well consider a $7 billion valuation on $100 million in revenues is insane, some claim. But then is it really?

Well some of the industry experts might disagree.

Similar

Some say that its similar to Google in 2001.

Google was valued at $7 billion even though it had only $86 million in revenues.

Anyone who had invested in Google at a $7 billion valuation in 2001 would have been called the world’s biggest moron. (Especially considering the fact that an actual bubble had recently popped.) A 1000X profit multiple!

And anyone who had invested in Google at a $7 billion valuation in 2001 would also have tripled their money in three years, when Google went public in 2004 at a valuation above $20 billion. (And if they’d held on to her stake, made a 20X return over 7 years.)

We need to understand that not all the companies making revenues in millions be valued at billions, but once in a while some of them are. Rather than it finding investors, investors would be pulled to such companies and compared to other sneer heads they would be laughing all the way to the bank.

There are some elements which are similar to Google 2001

  1. A simple, beautiful product loved by users and grows like wildfire.
  2. A professional CEO and a visionary, involved co-founder.
  3. Twitter also has network effects that Google doesn’t have, but these aren’t as important as most people think.

But that’s not the thing that makes Google and Twitter worth billions, as opposed to hundreds of millions.

The thing that makes you worth billions is a revenue-generating product with huge momentum.

It doesn’t matter the absolute numbers of your revenue, whether it’s $100 million or $10 billion or $10 million. What matters is the slope of the curve. Whether customers can’t get enough of your product.

Twitter is continuing to grow quickly. According to comScore Inc., Twitter.com in May saw 139 million unique visitors globally, up from 90 million a year earlier. Growth in the U.S. has been slower than internationally, with the site hitting 27 million unique U.S. visitors in May, up from 23.8 million in 2010. “We’re growing like a weed,” Mr. Costolo said at a conference last month.

So Twitter might be on its way to become another giant. Somehow we are not happy.

Lets see why Twitter might need more money in seven months.

Brains

The best possible reason for additional capital, could be that Twitter needs to hire the top brains in the industry to move forward.

Twitter is much smaller than some of its peers, counting just over 500 employees, and until recently its executive ranks were thin. Chief Executive Dick Costolo, who took over last fall, has been working on building out the company’s executive team and advertising business.

The hiring has been going around for a while.

In March, Mr. Costolo brought back Jack Dorsey, Twitter’s creator and CEO of mobile-payments company Square Inc., to help oversee the company’s product initiatives.

Around April, Mr. Costolo also brought on Satya Patel, a former Google product manager, to help lead product initiatives with Mr. Dorsey. The two are now working on ways to make the breadth of Twitter content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other topics and people they care about, people familiar with the matter have said. They are also exploring concepts similar to a Facebook Inc. technology that highlights posts by a user’s closest friends, these people said.

Mr. Costolo has made several other key hires, including from Facebook and News Corp., and is close to hiring a chief marketing officer, people familiar with the matter said.

Twitter also has acquired a small firm called BackType Labs that helps companies understand their impact on the Web via social media sites, including Twitter.

Revenue models

By trying to raise a large slug of money, Twitter buys itself more time to develop an advertising-based business that is relatively immature compared to its peers. Though Twitter has a growing user base, its ad system remains fledgling and it isn’t generating as much revenue as Groupon or Zynga.

Twitter revamped its site in September with the aim of being faster, easier to use, and better able to better handle photos and videos. The service now features a second column that lets users quickly look at messages without leaving a page.

Twitter introduced promoted tweets and trends last year, which proved to be the companys first notable revenue source.

Advertising sales on Twitter may more than triple to about $150 million this year, according to EMarketer Inc., a New York- based research firm. Still, thats dwarfed by the growth of Facebook Inc, which brought in ad revenue of $1.86 billion last year, EMarketer estimates.

Today, Twitter’s main advertising unit is called a “promoted tweet,” which looks like a regular tweeta message of 140 characters or lessand shows up in some users’ Twitter accounts or when any Twitter user executes a search on Twitter.com.

Twitter still has a long way to go in terms of developing better advertising offerings and a system that manages to avoid crashing on a regular basis. Could you imagine if every other time you went to McDonalds they said they couldnt serve you because their registers were broken? That wouldnt be much of a multi-billion dollar business would it?

Geek way to go

According to Costolo, mobile is the future. He says that 40% of all tweets happen on a mobile

He wanted to create a standard interface among all mobile clients.

It was announced last month that Apple Inc. that starting this fall, users of Apple mobile devices such as the iPhone will be able to publish photos, links to websites or broadcast their current location on Twitter with the tap of a button while using the device’s camera and Web browser, among other things. Twitter believes the partnership could significantly help it attract new users and increase the amount of information that people contribute to the service, people familiar with the matter said.

there is a possibility that Twitter is planning on investing in R & D so that it could be incorporated into Blackberry very soon.

Twitlive

Well Google has got it, now Facebook has got it, so why not Twitter.

Free video calls is the new perk provided by all social media platforms. The money which Twitter raises would definitely help them either outsource it or even build it within their own company.

Arabiangazette.com spoke to a tech analyst in Washington regarding Twitlive we definitely cannot rule out the possibility. Twitter is not the same company it was a year ago. It has evolved and become more competitive.

A stock broker from NYSE told arabiangazette.com that is what everyone seems to be waiting to see. The thing is, we were all watching the murder trial of Caylee Anthony on TV and tweeting about it as well. It would be great if there was twitlive!

Large some of money sure can buy a lot, would it buy live feed?

No IPO

The IPO for tech market is very hot at the moment. So why doesnt Twitter launch an IPO?

Ian Saglow analyst at Grey Croft Partners said that the rule of thumb is profits for at least 5 to 6 quarters before going for an IPO. Maybe Twitter is waiting to bring in more profits into the books before it launches.

As any company Twitter wants to maintain control and having the business within makes more sense than giving it out.

Gobble threats

Twitter is raising $7billion dollars to make its service more efficient, get the best people, create multiple revenue streams and also to keep hungry predators away. Who could this be. Well im sure we can think of many giants who would want to gobble the little blue bird.

However there is news that one giant was already in talks with the blue bird regarding acquiring it; this giant has been named as Google.

Just as everything that Google does this also has been done secretly. However nothing has come of it other than Twitter approaching venture capitalists.

As we all know Twitter has no plans on going public anytime soon, but when it does the companys valuation would have been valued so high that a takeover threat would definitely be off the books.

So it looks like a defensive strategy.

Is Twitter trying to hop on to the hot IPO bandwagon to obtain the maximum or is it being wise in trying to build itself slowly before it puts itself out for scrutiny.

Let us see what happens!

Source: Wall Street Journal, Bloomberg, Forbes

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