Even if Twitter Is Profitable, Is It Worth $1 Billion?
But wait, there's more to Twitter's 2009 profit. Bloomberg BusinessWeek also reports that Twitter has lowered its costs. Due to its big volume, it has been able to negotiate a lower rate on its payments to telecom companies for distributing billions of text messages over wireless networks. All told, Twitter employs about 105 people and pays an estimated $20 million to $25 million a year to keep itself operating.
So is Twitter worth $1 billion? It has raised $155 million in capital so far, and its latest valuation was $1 billion. As I've posted, Facebook is valued at around $10 billion and is anticipated to have $500 million in 2009 revenues. That would give it a value/revenue (V/R) ratio of 20. Applying that same ratio to Twitter's $25 million in revenues means Twitter would be worth $500 million now.
With these $25 million search deals, Twitter is at best only 50% of its way to a $1 billion valuation, using Facebook's V/R ratio as a basis. The challenge for Twitter in 2010 will be to get that other 50%.
Meet Peter at The World Money Show Orlando, February 3-6, 2010 at The Gaylord Palms Resort.