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Wednesday, December 21, 2011

Twitter Receives $300 Million from Saudi Prince

The popular social communication service Twitter received a major infusion of new cash after it was announced that Saudi Prince Alwaleed bin Talal, the nephew of the king of Saudi Arabia and the head of his own investment firm, the Kingdom Holding Company, invested $300 million in the company.

Investors Flock to Twitter

Twitter has been taking advantage of a strong venture capital market and its own burgeoning popularity to raise funds for the company. Earlier this summer, Twitter raised $800 million from a group of investors, including $400 million from Digital Sky Technologies, the well-known internet venture capital firm led by Yuri Milner. That round of funding valued the company at more than $8 billion.

Meanwhile Prince bin Talal has been looking to diversify his portfolio of investments to include newer technology companies, one of the few areas of the world economy that has seen considerable growth over the past several years. Indeed, Prince bin Talal has seemingly regretted his failure to fully embrace the growth of new social technologies and is hoping that his investment in Twitter will begin to turn that around.

Internet Companies Remain Popular

The growth of Web 2.0 companies has continued almost unabated in 2011, allowing several high-profile internet companies to raise huge amounts of money through initial public offerings. LinkedIn saw its shares more than double in price on its first day of trading back in May. Meanwhile, Groupon managed to raise $700 million in its initial public offering, which was the largest such offering by an internet company since Google, at least until Zynga bested them with its own $1 billion initial public offering just a month later.

As of now, Twitter has shown no interest in going public themselves, following a strategy similar to that of Facebook under the direction of Mark Zuckerberg. Like Facebook, Twitter has wanted to more fully develop its business model before undergoing the scrutiny of becoming a public company. Although more than 100 million people actively use Twitter, the company has still been seeking the optimal strategy to monetize its user base.

Building a Business Model

Over the past two years, Twitter has been attempting to raise advertising revenue through promoted tweets and other such strategies. Although such revenues are minimal compared to their considerable costs, they are growing rapidly. Twitter is expected to more than triple its advertising revenue in 2011 to $140 million when compared to the prior year. In addition, it is estimated that Twitter could nearly triple that figure again within the next two years.

In the meantime, Twitter has needed to continue finding sources of funding to help bridge the gap until the time when they become a profitable company. For the time being, Twitter has had little difficulty in doing this as investors have flocked to the company in the hopes of eventually profiting from a huge public offering in the future.

Of course, such gains from an initial public offering are not guaranteed: Zynga actually saw its share price drop on its first day of trading. However, investors have not shown any reluctance in accepting the risks of investing in young internet companies like Twitter, even at such high valuations. They believe that Twitter has built a successful platform that can sustain the test of time. If that is indeed the case, then Prince bin Talal may have just found himself a very astute investment.

Zienna Miller works tirelessly to create excellent content for various websites like buyteacuppigs.net and daniel-hayes.com.

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