How Twitter could earn its $1 billion valuation


Last week I wrote that Twitter was raising $50 million in new funding that would value the messaging service at $1 billion. Now it looks like that was a bit off -- Twitter is actually raising $100 million, although the implied value is still $1 billion.

One of the interesting things that happened since last week is that a mutual fund has decided to put some of its investor's money into Twitter. The fund, T. Rowe Price (TROW), will join Spark Capital and Institutional Venture Partners in this $100 million round -- which, when closed, will bring Twitter's total capital raised to $150 million.

One way to start thinking about Twitter's $1 billion valuation is to look at it in the context of the number of users. The San Jose Mercury News estimates that Twitter has 40 million to 50 million users. This is one-sixth Facebook, which has 300 million users and was valued at $10 billion on 2009 estimated revenues of $500 million, mostly from advertising.