The Wall Street Journal is reporting that Twitter has a valuation of between $8 and $10 billion, based on conversations with potential buyers. Internet overlords at both Google and Facebook are said to have recently entered "low-level talks" with the insanely popular microblogging service about buying them out.
A figure that high greatly exceeds previous estimates at the value of Twitter, still a privately-owned company that was founded back in 2006. Just last December, a round of investments valued the company at the comparatively tiny $3.7 billion.
The San Francisco-based social networking site is expected to make around $100 million in revenue this year— a tidy sum, but one that, as with many Internet startups, does not translate into a profit.
There's no doubting that Twitter has had incredible growth in the past couple years, but the company has had a tough time finding a sustainable model for monetizing its userbase. Until the roll-out of "promoted tweets" just last year, the site didn't even have any advertising at all.
So if Twitter isn't particularly good at making money, why would companies like Google and Facebook be interested in paying so much for it? A sale of Twitter at $8 or $10 billion would surpass Google's YouTube buy-out in 2006 five times over, and value the company at over 200 times its revenue for 2010. WSJ is careful to mention that so far the talks between the big Internet firms have stalled, and it's quite possible that suitors find Twitter's new price tag indeed too high.
But there are at least a few reasons why companies might be willing to pay a huge sum for Twitter. One is its tremendous insight into trends and user interest data, assets that have limitless potential if the site were to get serious about advertising.
A second is investment in the future. We may not know the true meaning of Twitter today, but we do know that it is a genuine phenomenon. Companies with cash would pay a premium to win control over it and shut out their competitors. Today, it's probably safe to say a lot of people would be happy to shell out $1.65 billion for YouTube— a sale price that was considered outlandish at the time.
A third draw is its sheer popularity. Twitter, which has around 200 million users worldwide, is increasingly seen as an indispensable communications tool. When a company becomes vital to such a large number of people (and counting), that's usually when the cash starts raining down.Â
So what do you think? Is Twitter worth between $8 and $10 billion? Or is this just another case of irrational exuberance online?