Twitter: punt on tweet smell of success

Financial Times – Lex –

Prince Alwaleed bin Talal is the perfect investor for Twitter: immensely rich and willing to take a punt. Should Twitter be eclipsed by the next new thing and its value disappear, the $300m Prince Alwaleed and Kingdom Holding Company (of which the prince controls 95 per cent) paid would hardly be missed. His personal wealth has been estimated at $20bn, and the holding company lists $10.5bn in assets on its balance sheet. Prince Alwaleed’s penchant for derring-do is reflected by his famous investment in Citigroup. But within technology and media, the prince’s focus seems to be on companies with big names that have fallen on hard times – including buying 5 per cent of Apple in 1997. Less profitably, he has put money into companies such as Compaq (now Hewlett-Packard), Motorola and Kodak. He also has made bets on rising tech companies before, including buying 5 per cent of Netscape for $145m in 1997.

Twitter is nothing if not up-and-coming: it has 100m users who log in at least once a month. The service handles 250m tweets of 140-characters every day. The issue for investors is how to turn all this wonderful activity into money. The company started carrying “promoted tweets” (read: advertisements) only this spring; eMarketer estimates that the company will have $140m in revenue this year, three times the 2010 level, and sees $400m in 2013.

These somewhat meteoric estimates had better be borne out if Twitter’s $8bn valuation is to make any sense at all. But with Twitter, as with Groupon, LinkedIn, and Zynga, investors who are not fortunate enough to be Saudi princes need to handle these predictions with great caution. They are totally new forms of media business and their staying power is uncertain.

Then again, the latter point could be made about an investment in Citigroup.


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