Twitter value reaches $1 billion with new investment

Among the most significant investors is believed to be New York-based venture capital firm Insight Venture Partners. The microblogging site has also received a second round of investment from Institutional Venture Partners and Spark Capital.

Industry observers have questioned the wisdom of the backing. Shaun Rein, managing director of Shanghai-based research firm CMR, described the news as “ridiculous”.

“Twitter is a great service for individuals and a great way to build brand loyalty,” Rein said, but added that investors appeared to be “throwing money around without looking at the underlying business fundamentals.”

Twitter has yet to implement a workable financial model or generate any substantial revenue. However, investors have discussed the potential of charging for mobile access.

“A valuation of $1 billion for a company that has yet to figure out a revenue model is concerning,” agreed Jason Kuperman, VP of digital development at Omnicom. “The other thing is that every two years or so there is a new name on the block. Everybody is into Twitter now, but it could lose steam.”

“I like Twitter, but I don’t know if it’s ever going to justify that valuation,” said Rein. “The only way it can justify it would be through a trade sale. It’s not just about the eyeballs; at the end of the day, you need to have financial feasibility.”

But Rein noted that within the context of Facebook, which has been valued at $10 billion, the valuation appeared less surprising. Twitter’s accessible, easy-to-use format gave it “more long-term growth potential”, he said.

“Based on where it is now, a high valuation is understandable,” noted Kuperman. “Twitter is not necessarily a flash in the pan, but I wouldn’t say it’s entirely a proven commodity either.”

Twitter last year rejected a $500 million acquisition bid by Facebook.