Twitter Inc. said it received a "significant" round of funding led by Digital Sky Technologies, a Russia-based venture firm that has invested in other social-networking companies that have enjoyed surging valuations.
San Francisco-based Twitter, which has more than 600 employees, didn't disclose how much money it raised in the long-anticipated announcement Monday.
Amir Efrati reports on the significance of fresh fundraising for Twitter, bringing the value of the site to $8 billion. He talks with Stacey Delo about the importance of the funder, Digital Sky Technologies
But a person familiar with the matter said that Twitter raised $800 million in an investment round that valued the micro-blogging service at $8.4 billion after the deal. Like a growing number of investments in fast-growing Internet start-ups, the financing round will be partly used to buy out existing shareholders, said the person.
Half of the investment will go to Twitter, while the other $400 million will be used to buy the shares of existing holders, said the person.
Investors are betting that Twitter can find a way to generate large revenues and profits from its vast and growing user base, much like Facebook Inc. is doing.
The company has been ramping up its bid to become an online-advertising powerhouse, though it is currently on course to generate $150 million in ad revenue this year, research firm eMarketer says. Last week, it introduced the most ambitious ad offering yet for brands such as Starbucks Corp. and Time Warner Inc.'s HBO to reach people who have expressed interest in their products on Twitter.
Twitter's new funding round is the latest sign of the growing investor hunger for social-media companies, which obtain information about people's personal interests that advertisers crave.
The company, which lets people broadcast messages of up to 140 characters known as "tweets," announced last December a financing round that valued the company at $3.7 billion. The service has more than 200 million registered accounts.
Twitter is rolling out a new advertising offering that ensures that 'promoted tweets' are seen by followers. AllThingsD's Peter Kafka has the scoop on digits.
"We will use these resources to aggressively innovate, hire more great people and invest in international expansion," Twitter said in a post on its blog Monday. The company has been hiring salespeople across the country and is also starting to hire employees in the U.K., among other places.
In recent years Digital Sky Technologies, led by Yuri Milner, also invested in Facebook, social-gaming company Zynga Inc., and daily deal site Groupon Inc. The latter two companies have filed for initial public offerings expected to take place later this year.
Twitter is behind those companies in terms of generating revenue, and it has been busy hiring people to fill its executive ranks over the past year.
Twitter released a statement from Mr. Milner in which he called Twitter "one of the few companies that has truly changed the world." He added that "Twitter's astonishing growth is a testament to how important it is becoming to more people every day, and why we couldn't pass up the chance to be a bigger part of its future."
COMMENTARY: In a blog post July 6, 2011, I commented on rumors that Twitter was talking with potential investors to raise $400 million in additional venture capital giving it a valuation of $7 billion.
Twitter has raised a significant amount of capital from a number of individuals and venture capital firms. Between December 2006 and March 2010, Twitter had raised an estimated $162.7 million (see below) in cumulative venture capital from a broad range of individuals and venture capital firms giving it a valuation of $1.4 billion.
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In December 2010, Twitter received a $200 million venture capital investment from Kleiner Perkins Caufield & Byers increasing its valuation to $3.7 billion.
In March 2011, 35,000 Twitter shares sold for $34.50 each on secondary market broker Sharespost, giving it implied valuation of $7.8 billion.
The latest $800 million in venture capital from Digital Sky Technologies and others raises Twitter's valuation to $8.4 billion.
If the above venture capital investment amounts are correct, this means Twitter has raised a total of $1.162 billion since it launched in 2006.
The DST raise is especially impressive considering that Twitter only generated revenues of $45 million in 2010, and eMarketer projects it will do $150 million in 2011. The latter is a price multiple of 56 times revenues. That's really impressive considering that it didn't begin selling its Promoted ads on a very limited basis until the 4th quarter 2010. No wonder Dick Costolo dresses so snazzy and looks so cheery these days.
Facebook's most recent valuation is $87.5 billion or 21.8 times and 46 times its 2011 and 2010 revenues respectively. Twitteer shows a lot of moxey convincing DST that its worth 56 times its 2011 revenues. Ahhh, those VC's. Investor exhuberance at its finest.
I actually believe that Twitter is doing much better than most people estimate, and it could generate $200 million in revenues and a pre-tax profit of $60 million in 2011. I know I can't prove this, but If you read my July 6, 2011 blog post, I believe my calculations might make some sense to you.
My guess is that depending on on well it does in 2011, it will seriously consider an IPO in either 2012 or 2013.
Courtesy of an article dated August 2, 2011 appearing in The Wall Street Journal
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