Twitter Seeks $7 Billion Valuation
As Peers Pursue Bigger IPOs, Messaging Service Sticks to Private Backing; Still Searching for the Right Business Model

Even as Internet companies such as Zynga Inc. and Groupon Inc. file to go public, Twitter Inc. is taking a different route: It is continuing to tap private investors.

Twitter, the Internet-messaging service, is privately raising hundreds of millions of dollars in a new financing round that values the company at as high as $7 billion. Emir Afrati has details.

The fast-growing Internet messaging service is currently in discussions to raise a new round of private financing, said people familiar with the matter. The round could yield hundreds of millions of dollars and value Twitter as high as $7 billion, one of these people said. It is unclear which investors are participating in the new round.
The talks come seven months after Twitter, which lets people broadcast and read messages called "tweets," raised $200 million in a financing led by venture-capital firm Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion.
A Twitter spokesman declined to comment on the San Francisco company's finances.
Twitter's new valuation underscores the soaring price tags for some Web companies. Over the last month, daily deals site Groupon and online gaming start-up Zynga have filed for initial public offerings, in moves that some estimate would value those companies at around $20 billion each upon their stock market debuts.

By trying to raise a large slug of money, Twitter buys itself more time to develop an advertising-based business that is relatively immature compared to its peers. Though Twitter has a growing user base, its ad system remains fledgling and it isn't generating as much revenue as Groupon or Zynga.
Twitter is also much smaller than some of its peers, counting just over 500 employees, and until recently its executive ranks were thin. Chief Executive Dick Costolo, who took over last fall, has been working on building out the company's executive team and advertising business.
"Twitter is still evolving its business model," said Tony Florence, a partner with venture capital firm New Enterprise Associates. "Staying private while you are figuring out your model makes a lot of sense."
Twitter, which was created in 2006 and has more than 200 million registered user accounts, is currently on track to produce about $150 million in ad revenue this year, according to research firm eMarketer, up from $45 million last year.
Chief Tweeter: CEO Dick Costolo has revamped Twitter's executive team and slowly built its advertising business.

Mr. Costolo has said that the company has purposely limited the availability of ad space to "make sure we get it right."
In contrast, Zynga reported net income of $91 million on revenue of $597 million last year, according to its filing. Groupon, in its filing, revealed its revenue surged to $644.7 million in this year's first quarter, though it was unprofitable.
Today, Twitter's main advertising unit is called a "promoted tweet," which looks like a regular tweet—a message of 140 characters or less—and shows up in some users' Twitter accounts or when any Twitter user executes a search on Twitter.com. People log on to Twitter to track everything from global conflicts to sporting events and natural disasters.
Twitter is currently working on a plan to regularly incorporate promoted tweets prominently in users' accounts, the company has said. The move could significantly accelerate revenue growth by increasing the number of ads it can sell.
Twitter is also working on ways to create a new ad offering of the sort that made Google Inc. a Web-search advertising powerhouse, said a person familiar with the matter. The new ad type would differ from those that are currently available, this person said.
Much of the push to build out Twitter's business comes from 47-year-old Mr. Costolo. The former management consultant and Google product manager, who has won over many Twitter employees with his self-deprecating humor, has also been busy building out the company's executive bench.
Mr. Costolo has been credited with carefully managing the exits of two of the company's co-founders: Evan Williams, who was Twitter CEO between 2008 and last fall, and Biz Stone, Twitter's evangelist and spokesman on talk-show circuits. Mr. Williams remains on Twitter's board of directors.
In March, Mr. Costolo brought back Jack Dorsey, Twitter's creator and CEO of mobile-payments company Square Inc., to help oversee the company's product initiatives.
Around April, Mr. Costolo also brought on Satya Patel, a former Google product manager, to help lead product initiatives with Mr. Dorsey. The two are now working on ways to make the breadth of Twitter content more visible to first-time visitors, helping them quickly discover information about stocks, sports and other topics and people they care about, people familiar with the matter have said. They are also exploring concepts similar to a Facebook Inc. technology that highlights posts by a user's closest friends, these people said.
Mr. Costolo has made several other key hires, including from Facebook and News Corp., and is close to hiring a chief marketing officer, people familiar with the matter said.

Twitter's Valuation, By the Numbers
The CEO had a coup last month when Apple Inc. said that starting this fall, users of Apple mobile devices such as the iPhone will be able to publish photos, links to websites or broadcast their current location on Twitter with the tap of a button while using the device's camera and Web browser, among other things. Twitter believes the partnership could significantly help it attract new users and increase the amount of information that people contribute to the service, people familiar with the matter said.
Twitter is continuing to grow quickly. According to comScore Inc., Twitter.com in May saw 139 million unique visitors globally, up from 90 million a year earlier. Growth in the U.S. has been slower than internationally, with the site hitting 27 million unique U.S. visitors in May, up from 23.8 million in 2010. "We're growing like a weed," Mr. Costolo said at a conference last month.
On Tuesday, Twitter also said it has acquired a small firm called BackType Labs that helps companies understand their impact on the Web via social media sites, including Twitter.