I spent the last week trying to write a column that proved Twitter wasn’t worth $10 billion. Then the facts intervened.
Stubbornly, they arranged themselves to lead to a most unexpected conclusion, one that seems almost blasphemy to type: Twitter has the potential to match some of the money-gushing properties of the Internet’s greatest money gusher, GoogleInc. GOOG -0.08%
If you watched the Oscars Sunday night, you saw Twitter’s raw influence on display as jaunty red carpeters, advertisers and actors gabbed in Twitter’s sometimes-obtuse language of hashtags and handles. It was as if the world had folded in on itself—all-powerful television reduced to being a lowly portal to social media.
That cultural ascendancy isn’t lost on Twitter and its investors, who are said to be plotting what would be the premier public offering of 2013. In recent weeks the seven-year-old company completed private transactions that pegged its value at $9 billion. Others have put the value above $10 billion.
This is remarkable because Twitter has been in the money-making game for only three years, primarily selling “sponsored tweets” to advertisers whose come-ons pop up in the message streams of the service’s 200 million-plus active users.
It’s working. Advertising-data-firm eMarketer Inc. estimates 2014 revenue at $808 million, but people in the venture-capital community are already whispering that Twitter will break $1 billion by then. In fact, eMarketer will soon revise its figures upward though it won’t say by how much.
Twitter isn’t worth $10 billion if you benchmark it to its current financials. But that hardly matters now. The prime question is just how big Twitter can get –and how profitable.
Walk through the numbers, as I did with the aid of a new research firm called Triton Research, and it’s hard not to see the ghosts of Google past.
Today, with a relatively immature set of products, Twitter is collecting an estimated $4 for each of its 200 million-plus monthly active users. Ad budgets are moving increasingly to social outlets—a secular shift that should easily push this number higher. Being conservative, let’s peg that number at $7 per user by 2016, below the rate analysts expect Facebook’s FB +0.44% revenue to grow.
Pew Research Center figures suggest it will be difficult for Twitter to reach Facebook’s billion-member plateau. Still, in the last nine months of 2012, Twitter users grew by more than 40%. Maintain a pace of more than 33% growth for three years and that member number expands to about 500 million. That will require lots of growth outside the U.S., where some one in five Twitter users are expected to reside by 2014.
This is where Twitter will have to do most of its work. Foreign competitors are making headway, and Twitter is shut out of China. But watch the Oscars and you’ll see that Twitter doesn’t have to do much advertising yet—others are proselytizing on their own dime…
Read More: Dennis Berman, wsj.com
