Twitter Closing $800M Funding Round at $8 Billion Valuation • Hacker News Board

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#11

Post by leftnode » Wed, Jul 20, 2011, 9:44 PM UTC

barredo wrote: post #6

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

Facebook is profitable, yes. Most of people (edit: instead of most I said '99%' but that's not true so I updated) use FB from their browser going to facebook.com (or searching facebook on Google and clicking the first link), while Twitter is used mostly in desktop/mobile apps. It's a bit more difficult to develop a business model for Twitter than for Facebook, which is profitable with "just put ads on the right of ev…

33% of Facebook traffic comes from mobile devices - http://www.facebook.com/press/info.php?statistics

Facebook has a tremendous mobile foothold.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#12

Post by barredo » Wed, Jul 20, 2011, 9:49 PM UTC

leftnode wrote: post #11

barredo wrote: post #6

Earlier quoted context omitted.

Facebook is profitable, yes. Most of people (edit: instead of most I said '99%' but that's not true so I updated) use FB from their browser going to facebook.com (or searching facebook on Google and clicking the first link), while Twitter is used mostly in desktop/mobile apps. It's a bit more difficult to develop a business model for Twitter than for Facebook, which is profitable with "just put ads on the right of ev…

33% of Facebook traffic comes from mobile devices - http://www.facebook.com/press/info.php?statistics Facebook has a tremendous mobile foothold.

Ooops! Sorry, I pulled the 99% from my ass to make a point and I was not really meaning 'real 99%'. Sorry. I'll edit the post. Thanks for the correction.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#13

Post by orky56 » Wed, Jul 20, 2011, 9:54 PM UTC

kloncks wrote: post #5

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

Why try and achieve something hard like profitability when you can easily be valued at $8b and raise $800m to keep that going? I don't mean to be too critical but sometimes I wonder if this is better than, say, Twitter finding out that it can't make more than some small amount of money in profit.

Raising capital and valuations are just temporary measures and good faith to turn the product into a company. Having money to hire more people just exacerbates the problem. They now have higher operating costs (where this new capital goes) and now need to have the even higher revenue to create a margin that makes it all worth it in the first place. OR you just get stuck in a Groupon situation where we have big revenue off big costs (salespeople).

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#14

Post by forgottenpaswrd » Wed, Jul 20, 2011, 9:57 PM UTC

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

Because they don't need to?

You know, if you could get 800M$ who cares about revenue? They are getting money while they can before the bubble burst, the early investors are getting money selling to a greater fool and the greater fool are putting money over the table betting someone else will be even bigger fool.

Facebook is profitable but "not that profitable", they need to be much much more profitable at the current valuation, that means being pure evil, and I don't know if the people will stand that.

The Facebook, Zynga, Groupon burst will be something great to see, again(it seems people just can't learn from the past, "this time is different").

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#15

Post by dotcoma » Wed, Jul 20, 2011, 10:05 PM UTC

benofsky wrote: post #10

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

Twitter's data set is incredibly valuable; Twitter won't make money from ads, they will make money from analyses of their data [1]. Developing infrastructure and software that can analyse the sheer quantity of data Twitter generates takes time — and money. But, when they finally crack it they will be extremely profitable. It's much easier for Twitter to do this opposed to Facebook (who I would say is also interested…

ok, but do they really need 800 million (or 400 million) to turn backtype and other companies and/or ideas into a working business?

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#16

Post by damoncali » Wed, Jul 20, 2011, 10:05 PM UTC

nodata wrote: post #3

Why does selling a 10% chunk of a company value the remaining 90% at the same price?

It doesn't. It's just an implied valuation based upon simplistic math.

For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rate (say its 7%). That investor makes good money if Twitter gets sold for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment going negative is quite low (relatively speaking), as would be the investor's cost of capital. I doubt the seed investors would look at such a sale positively.

That is a grossly oversimplified version of what can happen (I have no idea what the terms of the real investment are - I'm just making up a for-instance). But the larger point is that you are correct, when you are dealing with preferred stock and other complicated securities, the implied valuation is a bit of a joke. You have to look at the value of all of the various tranches of securities, each of which is impacted by the others.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#17

Post by damoncali » Wed, Jul 20, 2011, 10:07 PM UTC

dotcoma wrote: post #7

how sick is this? A company that had already raised north of 300 million and had never even made half as much in revenue gets... another 800 million? what for? how ridiculous is this?

I think you answered your own question. Without revenue, outside capital is needed for growth. And it's tough to tell if the valuation is dumb without seeing the terms of the deal.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#18

Post by thematt » Wed, Jul 20, 2011, 10:13 PM UTC

swombat wrote: post #4

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

Because Twitter is innovative, while Facebook is just f'in huge?

That's ridiculous. Facebook is incredibly innovative as well, even more-so than Twitter. They're solving huge scalability problems that nobody else has encountered before.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#19

Post by jamiequint » Wed, Jul 20, 2011, 10:13 PM UTC

damoncali wrote: post #16

nodata wrote: post #3

Why does selling a 10% chunk of a company value the remaining 90% at the same price?

It doesn't. It's just an implied valuation based upon simplistic math. For example, suppose that $800M had a 1x liquidation preference plus a modest hurdle rate (say its 7%). That investor makes good money if Twitter gets sold for (1.07 x $800M) $856M - a far cry from $8B. The risk of such an investment going negative is quite low (relatively speaking), as would be the investor's cost of capital. I doubt the seed inv…

This is only true if the shares sold in this round participating preferred and earlier investors were not entitled to money back in such a sale, I doubt either is the case here.

Re: Twitter Closing $800M Funding Round at $8 Billion Valuation

#20

Post by revorad » Wed, Jul 20, 2011, 10:16 PM UTC

gabaix wrote: post #2

Why is Twitter so slow to find a good business model, while Facebook is profitable?

It must at least partly be due to the fact that Twitter has been guarding the simplicity of its product. Facebook is a communications platform at its core, but it also allows third-party developers to use it just as an identity database on its own property. You can run games on Facebook.com, you can't on Twitter.com.

The simplicity of Twitter has also made them discourage third-party development off their property. If all you've got is a SMS broadcasting service and you have an open API, it's not so hard for others to clone all your features and more. It's not as easy to clone Facebook because it has a lot more functionality. So that has limited Twitter's off-site monetisation options.

Twitter is similar to Facebook in the sense that people spend a lot of time on it, but for some reason (good for users, bad for short term profitability), Twitter has not added any Facebook-style display advertising on its website.

Now, this guarded simplicity exists in another internet giant - Google search. You cannot really make any third-party products on top of it and you're unlikely to see flashing banner ads there any time soon. But, Google has intent, which means Adsense works great. While Twitter doesn't have as clear an intent signal, an Adsense-like product on it won't be a big surprise.

The simplicity of Twitter as a social network gives it a lot of pace. Stories, trends, memes move fast on Twitter. So, it's hard for advertisers to capitalise on any particular theme for long or at the right time. But, I expect they will churn out more brand management and marketing tools for big companies. That's what I guess Twitter's major source of revenue will be (big deals), rather than self-serve ad platforms for small to medium companies like Facebook and Google.