Twitter May Be Profitable — No, Seriously!

17 Comments

Team Twitter: Biz Stone, Ev Williams & Jack Dorsey. Photo by Om Malik

We, like so many others, have joked about Twitter’s non-existent business model and its frothy billion-dollar valuation. Apparently we might have to stop that — at least for now. The San Francisco-based micromessaging company is said to be profitable, according to a report in Bloomberg that quotes someone close to the company. The profitability might be shortlived, however, as Twitter continues on path of hyper-growth.

The company is going to bring in revenue of $25 million, thanks to its search deals with Google (s GOOG) and Microsoft (s MSFT). Google is paying the company $15 million a year, while Microsoft is paying it $10 million for access to its real-time data. The company, Bloomberg claims, has operating costs of $20-$25 million a year, which allows it to be slightly profitable for 2009. According to some estimates the company, which has 105 employees, is likely to have revenues of $114-$134 million in 2013, sans profits.

I have to admit, the report came as a bit of a shock. Even if the search deals are rewarding Twitter handsomely, it was safe to assume that the company would still be spending a lot more as it continues to grow its business. In 2010, I won’t be surprised if it spends lavishly on three things:

  • *New management team including several new “C”-suite executives.
  • *Infrastructure to scale their network to accommodate future growth.
  • *Hiring more engineers and other key people as it tries to build out the service.

Which means the so-called profits are going to evaporate and the company will have to dip into its $155 million (VC) cash hoard. Even the soon-to-come commercial accounts might not be enough to make up for all that spending. That said, I think Twitter isn’t charging Google and Microsoft enough for its core product: the status updates. But hey, that’s just me!

17 Comments

opendna

IMHO, Twitter’s business model is to eventually extort kickbacks from wireless service providers (Verizon, AT&T, Sprint, T-Mobile, etc). Your message may only be 140 characters, but the data sent is more like 2.8K per message across the cell networks. Take 10% of the data charges generated by Twitter messages, and I’m sure they’d be comfortably in the black.

Max

Twitter is far from being a protocol. A protocol is defined by the three aspects syntax, semantics, timing. Would you call Google a protocol? I think not.

It’s good to see that Twitter is making profit but the future will show if users want to stay dependent on one single provider for their core communication. My hope is that an open and compatible decentralized infrastructure is built.

Max

Tammy

How do i protect my tweets in order for it not to appear in any search results??? Someone???? The only people who want their tweets public are celebrities, news channels and attention seeking individuals. I’m neither.

Teach me someone?

Barney

Twitter is nothing to shout about. It is quite obviously a temporary solution to real-time.

It is not here for the long haul.

Om Malik

Barney

You can have your opinion, but my take is that Twitter is here to stay, at least for the near foreseeable future. I think the whole notion of real-time is a bit bogus and fitting Twitter into that thesis doesn’t make sense. Twitter is a new communications protocol and every day more new technologies emerge that are leveraging this protocol.

So twitter the company might go away sometime in the future, the protocol is going to be around for a long time.

Alex

Agree that its a new communication “protocol”.

As far as the revenue model. I’m very happy for Twitter being able to recognize revenue and “breaking even”. But, if this is all they can generate from two of the largest balance sheet cash cows (MSFT & GOOG), with their growth starting to flatline it may be the beginning of the end. ok may be not the end, but, paying 40x earnings requires a huge growth curve with a a validated revenue and operating model. Even if you look out to 2013 and they can somehow achieve $100M in licensing revenue that is still 10x. No way jose!

Todd

I’ll do the disclosure for “Barney”, since he didn’t do it himself…

“Barney” is a scorned Friendster series A investor.

:P

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