Twitter: 140 Characters at $1 Million Apiece

Hear that, Fool? It's the sound of Web watchers hyperventilating at the news that Twitter expects $140 million in 2010 revenue, up from zero dollars today.

Fiery adjectives punctuate most of the mainstream coverage -- particularly "crazy" and "impossible." But is it? Is Twitter just another loser-in-the-making with an Underpants-Gnome business model?

Only if you assume the company has no plan to make money. But that would be stupid. Proven investors such as Benchmark Capital's Bill Gurley don't place multimillion-dollar bets on companies that have no idea how they'll make money. He and his partners surely must be privy to a plan.

In fact, there are plenty of ways for Twitter to make money. Still my favorite option: a permissions-driven supplier of microtargeting data. Any company that recommends products, services, or entertainment could benefit from the conversational intelligence that Twitter provides. Netflix (Nasdaq: NFLX  ) and Amazon.com (Nasdaq: AMZN  ) spring to mind immediately, but hundreds of other businesses could also benefit. (Interesting tidbit: Amazon's Jeff Bezos is also invested in Twitter.)

At the very least, Twitter could help shape advertising strategies on other platforms -- a service similar to what Akamai (Nasdaq: AKAM  ) offers right now. Google (Nasdaq: GOOG  ) and Facebook already know this. Both companies have tried and failed to acquire Twitter.

Some observers fret about that hefty $140 million figure, quite understandably. Twitter feels like a classic Underpants Gnome business. There's just one problem: The company is already blowing past its own projections.

Leaked documents show that Twitter insiders were expecting 25 million users and $4.4 million in revenue by the end of this year. Researcher comScore says that Twitter attracted 37.3 million unique visitors in May alone.

By the end of next year, Twitter expects 100 million regular users. And it expects those users to help drive $140 million in revenue, meaning that each one will account for $1.40 in annual sales. Not bad, but we're already seeing better. Look at Facebook. The king of social networks now sports 250 million users worldwide, and it's on track to produce more than $500 million in 2009 revenue -- at least $2 per user -- according to Netscape co-founder Marc Andreesen, who sits on Facebook's board of directors.

Also like Facebook, Twitter has become a platform upon which businesses are being built and funded. News Corp.'s (NYSE: NWS  ) MySpace failed in this area, and it's losing ground to its principal rivals as a result.

Think about that for a minute. Twitter is better-positioned than MySpace. It's also well-funded, and it provides a service that more than 37 million people find valuable.

Maybe that's not enough to produce $140 million in 2010 revenue. But in tech, rebels tend to win often, and in very big ways. Twitter is as well-armed a rebel as I've seen.

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Fool contributor Tim Beyers wonders whether Twitter is playing a joke on us -- $140 million, 140 characters. Coincidence? Hmmmm. Tim had stock and options positions in Google and a stock position in Akamai at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy was tossing and tweeting in bed last night.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 16, 2009, at 3:00 PM, septa44 wrote:

    The history of the Web shows that, most often, when a site begins to charge for a service, a free alternative will become available. Twitter will probably find a way to monetize themselves to some extent, but until they can adopt some sort of traditional advertising model, I don't see how they can reach $140 million.

    Adam

    http://www.twitterbacklash.com

  • Report this Comment On July 17, 2009, at 7:58 AM, TMFBent wrote:

    Tim, Tim, Tim...

    "Proven investors such as Benchmark Capital's Bill Gurley don't place multimillion-dollar bets on companies that have no idea how they'll make money."

    An appeal to authority to prove your point? We can do better than that. And I'm not sure it's such a great appeal. It's called begging the question.

    Twitter is a good investment because X guy invests in it, and he makes good investments.

    That kind of evidence wouldn't hold up in freshman philo, and we shouldn't try to use it here.

    Besides, "proven" investors make lousy investments. And they make investments in Web companies with no plans other than collecting underpants. They do it all the time.

    Doesn't mean their plan is to lose money. Sometimes their plan to make money is no more sophisticated than "collect underpants, IPO, dump shares on gullible public bagholders." Doesn't have to matter at all if the company can make any money. Only matters if they can sell the sizzle while the ignorant and excitable are willing to cough up wads of money.

    Claims of Twitter's great revenue-generation potential (including yours) should at least be accompanied by plausible examples. Comparisons to other money-burning underpants-gnomes (Facebook) don't prove any point, especially because Twitter's "product" is so different from Facebook's.

    And though $140 might be conceivable, let's talk about the $1.4 billion their docs claim they'll produce by 2013, when they somehow think they'll have a billion users (more than half the current total internet users on earth...)

    Twitter's the latest Web pet rock. It's OK to love a pet rock, but you're never going to teach it to hunt.

  • Report this Comment On July 20, 2009, at 2:17 PM, TMFMileHigh wrote:

    SJ,

    Thanks for the comments.

    >>Twitter is a good investment because X guy invests in it, and he makes good investments ... That kind of evidence wouldn't hold up in freshman philo, and we shouldn't try to use it here.

    Agree. Fortunately, this is but one data point and not the central thesis.

    >>Claims of Twitter's great revenue-generation potential (including yours) should at least be accompanied by plausible examples.

    Agree on this as well. See the following for examples of revenue-generating models and businesses being built on the platform:

    http://www.fool.com/investing/high-growth/2009/02/17/why-twi...

    http://www.fool.com/investing/high-growth/2009/02/18/heres-h...

    http://www.fool.com/investing/value/2008/12/22/the-big-money...

    >>Twitter's the latest Web pet rock.

    Couldn't disagree more. You might not love Twitter, but you have to at least concede the facts. Twitter has become a platform for business. Amazon, Dell, and several others are already proving this.

    Do yourself a favor and take a look at Shel Israel's Global Neighbourhoods for more about Twitter's varying business uses:

    http://redcouch.typepad.com/

    Thanks again,

    Tim

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