Please ensure Javascript is enabled for purposes of website accessibility

Why Twitter Could Be a Billion-Dollar Business

By Tim Beyers – Updated Apr 6, 2017 at 2:56AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

No service is better equipped to capture useful data.

I believe in the microblogging service Twitter. I believe it's recession-resistant, a better source for breaking news, and worth $1 billion.

Rewind to fast forward
Fools won't be surprised by my enthusiasm. In late 2008, I predicted that Twitter would be the Big Money pick for the year ahead:

If I have to make just one prediction for 2009, let it be that next year will be the year of the platform. But not just any platform -- a platform that's simple, accessible, and a springboard for entrepreneurs and investors alike. Twitter, in other words. 2009 is your year.

So far, so good. Late Friday, company co-founder Biz Stone announced in a blog post that Twitter had accepted new funding from Institutional Venture Partners and Benchmark Capital.

"We weren't actively seeking more funding because significant capital from last year's partnership with Bijan and his team at Spark [Capital] is still in the bank," Stone wrote. "Nevertheless, our strong growth attracted interest and we decided to accept a unique opportunity to make Twitter even stronger with a very attractive offer."

Benchmark Capital partner Bill Gurley tweeted the news shortly after. Gurley, you may remember, is extremely bullish on cloud computing services in general and Amazon.com's (NASDAQ:AMZN) Web Services (AWS), in particular. Twitter, like IBM (NYSE:IBM), is an AWS client, so it's entirely unsurprising that he and his partners are investing now.

Why $250 million is lowballing it
Stone's language and a post subtitle -- "An Offer We Couldn't Refuse" -- strongly suggest that earlier reports of Twitter being valued at $250 million were likely accurate. But I wonder whether those estimates weren't conservative. Twitter could command $1 billion in a public offering, right now, legitimately.

Sound crazy? Probably. Twitter has roughly 6 million active users today; a $1 billion valuation implies that each of those users is worth $167, or 42 times the approximate value of a Facebook profile.

That's troubling math. Facebook is growing at an astounding pace, and it was due to book at least $300 million in 2008 revenue. Twitter, whose user base is up 900% year over year, was scheduled to book ... none. The company has yet to publish its revenue model.

If your head hurts at this point, you're not alone. Venture capital investors -- or, in Foolish parlance, Rule Breakers -- divine conclusions from incomplete data, using history and relative benchmarks to handicap the odds of success.

Here, the best benchmark is a focus group -- a small group of individuals whose responses inform researchers hoping to understand the opinions, intent, and purchasing habits of a market. Online sources I consulted say that marketers often spend $3,000-$6,000 to establish one, or at least $300 per participant if you assume a 10-person group.

The trouble with focus groups is that they're hypothetical. Twitter, on the other hand, is a collection of conversations -- a digital "thought stream," as TechCrunch's Erick Schonfeld wrote on Sunday. Twitter allows marketers to divine both intent and action. Suddenly, $167 per user doesn't sound so crazy, does it?

Socially searching
Schonfeld's thesis is interesting. He reasons that Twitter is a better search engine than Google (NASDAQ:GOOG) or IAC's (NASDAQ:IACI) Ask.com for "thoughts and events that are happening right now." He's right.

It's unclear whether Google knows this. In January 2008, during an interview with VentureBeat, company vice president Marissa Mayer gave a very different description of what constitutes social search, as you might call it.

"So if we took Web History and allowed that data to influence rankings, such that pages that your friends have visited were now bumped up in your search ranking, that that might be a good augmentation to something like personalized search. In essence, it's a fusion of personalized and social search," Mayer said then.

Surely that would be valuable. It may even be the Holy Grail for Microsoft (NASDAQ:MSFT) and search-sensitive social networks like Facebook, LinkedIn, and News Corp.'s (NYSE:NWS) MySpace. But if enthusiasm for Akamai's (NASDAQ:AKAM) real-time ad-delivery services is any indicator, marketers want more: instant pitches presented at the moment when they most matter to you. Twitter supplies the thought stream to enable that.

How to monetize it? Tune in tomorrow for my ideas. If you have comments in the meantime, email me here or sound off in the box below.

Amazon is a Stock Advisor selection. Akamai and Google are Rule Breakers recommendations. Microsoft is an Inside Value pick. Try any of these Foolish services free for 30 days. There's no obligation to subscribe.

Fool contributor Tim Beyers had stock and options position in Apple and 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. Its disclosure policy is one tweet short of twitterific.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$237.92 (-1.27%) $-3.06
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$98.74 (-1.40%) $-1.40
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$122.71 (-2.08%) $-2.60
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOX
Akamai Technologies, Inc. Stock Quote
Akamai Technologies, Inc.
AKAM
$81.11 (-1.19%) $0.98
Match Group, Inc. Stock Quote
Match Group, Inc.
IAC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.