The value of online chatter has hit a new peak after a fundraising round of $800 million (£492 million) in micro-blogging site Twitter valued the loss-making business at $8 billion.
Simon Jones discusses the valuation of Twitter with the Times.
The valuation is the latest signal that a new tech boom is emerging with a host of flotations, most notably LinkedIn, soaring on their debut and investors clamouring to pour money into companies perceived to have the potential to become the new Google.
Twitter will use the funds to launch a hiring spree and to expand internationally. The new round of financing will also result in a lucrative payday for a number of employees and early investors. Half of the new funds will go toward buying back shares in the business.
Russian investor DST, which has backed a host of promising Silicon Valley companies including Facebook, has paid £246 million for a 5 per cent stake in Twitter with the rest of the funds provided by financial investors including a digital fund controlled by JP Morgan.
Twitter was rumoured to be investigating a flotation earlier this year but a listing of shares in one of the most sought-after digital media investments alongside Facebook does not look likely until 2013 following the latest funding round. However question marks still remain over Twitter’s business model as the company has yet to turn the billions of one-line messages published over its platform every month into profit.
Simon Jones, a director at valuation firm American Appraisal, said: “Twitter, like Facebook, clearly has a degree of first-mover advantage and the brands have become embedded in consumer consciousness. However, at this valuation it seems the investors are putting a lot of faith in the ability of management to turn users into hard cash.”
Sam Jardine, an associate at law firm Eversheds, said: “Somebody, somewhere, knows something about Twitter which the rest of us don’t. The recent levels of funding into the company are heralded as the largest ever venture finance injection.” However Mr Jones noted that Google, which once fought off the “hyped” tag when it listed shares, is now worth $200 billion. “The numbers are big but should just one of these investments pay off, the return for investors is potentially massive.”
This Article was published by Nic Fildes, the Times on 2 August 2 2011