Alwaleed Buys Into Twitter

December 19, 2011 by Naser

Prince Al Waleed Bin Talal, through his company Kingdom Holding Co., has acquired a 3% stake of the popular social networking website Twitter for $300 million. The news sent KHC’s stock up by more than 7% during today’s trading. The deal values Twitter at $10 billion, which represents a 25% jump since late summer, when the website was valued at $8 billion. The demand for social networking websites is still growing, with investors’ appetite for such investments is still strong even with the current macro economic conditions. Facebook, which is thought to be going public next year, saw similar small private transactions multiply the firm’s value during the past couple of years.

The only issue that I have with Twitter as an investment is the ability to monetize the website. How will Twitter justify such a valuation unless it generates revenue and in turn profit? Will they add an advertising capability, similar to what Facebook did? Will they create a new type of premium accounts that users have to pay for and offer add capabilities, similar to what LinkedIn did? Other social websites are revenue generating and some are even profitable. Facebook, for example, generated revenue of $2.5 billion for the first three quarters of 2011, and profits of $714 million for the same period.

So unless Twitter finds a way to generate money, an investment into the website will be worthless.

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