Big Two eye $10bn glitter of Twitter

Less than five years after Twitter's founders dared to believe that there was nothing important that couldn't be said with 140 characters or less, it is attracting takeover interest from the biggest companies on the internet, and the price being put on it is a thumping $10bn.

Nobody doubts that Twitter, on which its 200 million users share pithy distillations of their thoughts or links to their favourite web pages, has revolutionised communication on the internet, but the potential takeover price was raising eyebrows yesterday because not only is the company yet to turn a profit, it has not yet worked out a plan for doing so.

Reports in the financial press in the US claimed that Facebook and Google have held "low-level talks" about acquiring Twitter at a valuation of between $8bn and $10bn. For now, the company's bosses are intent on building Twitter into an independent giant, rather than selling out, so the talks have stalled, but other, unnamed suitors are also said to have started sniffing around.

Some of the savviest investors in Silicon Valley believe that Twitter's valuation is only going higher, and have been scrabbling to get their hands on shares, which are traded only on hard-to-access private markets. Two months ago, the company raised $200m to fund its development, in a fundraising round that valued it at $3.7bn.

And this week, the California venture capital firm Andreessen Horowitz, led by Netscape founder Marc Andreessen, who is on Facebook's board of directors, spent $80m buying Twitter shares at a valuation that observers said is sure to be considerably higher. The $8bn to $10bn valuation bandied about by potential acquirers suggests all these new investors are already sitting on big profits, at least on paper.

Facebook, the online network used by more than half a billion people around the world, and Google, the start-point for most people searching the internet, would be keen to wrap Twitter into their own companies, not least to stop the other from acquiring it. What Facebook, Google and Twitter have in common is that they offer ways for people to share and discover content on the Internet, and in a fast-evolving environment, no one can be sure what the future holds for any of them.

Twitter continues to soar in popularity. It has more than 200 million registered users, including one in eight people on the internet in the US, generating more than 70 million tweets a day. It has tripled the number of employees working on the business in the past year and now has some 350.

But it has only just begun to explore ways to make money. Advertisers can pay to have their 140-character tweets lifted to prominence, or to put their names on a list of popular topics, but the options are being kept deliberately limited by Twitter as the company gauges users' reaction to the intrusions. Twitter brought in $45m in revenue last year, and is expected to do a little more than double that in 2011.

Investors bought into Facebook last month, when it raised $1bn in a deal that valued it at $50bn. For many, the soaring value of these companies proves only one thing: Silicon Valley is in the grip of another bubble.

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