January 29, 2011
It should come as no surprise to anyone that Twitter is a hot commodity. After being endorsed by celebrities, frequented by the teen demographic, and proving a popular supplement to Facebook (even faster message dissemination), Twitter has become synonymous with current trends in social networking. And at the rate it’s growing, that doesn’t look to change any time soon. Remember when it was weird to friend your mom on Facebook? Now you can follow every moment of her life through her Twitter feed (and she either possesses a level of coolness you never suspected or she simply has a lot of friends). In fact, so many people are on board with Twitter that they have become one of the fastest growing privately held companies.
You are correct in assuming that, like Facebook, Twitter has not gone public. While you may be wondering why this is so (with the rapid growth and decline cycle that most web phenoms face, it seems like it would be in their best interest to strike while the iron is hot), it’s probably only because you don’t realize how they get their money. Most people have a fair understanding of how the stock market works. Publicly traded companies offer shares of stock that anyone can buy. This stock then rises in value (hopefully) and those who bought it sell for a profit. The stock may even yield yearly dividends based on the company’s earnings.
What you probably aren’t aware of is that some privately held companies engage in a secondary market of stock trading that is done privately (as in, they receive large amounts of funding from just a few investors). In this way, they are able to stay in business or expand while their investors share in a portion of their earnings (in the case of social networking sites, this generally comes from advertising). And of course, the people who own and manage the company don’t have to give up control or risk takeovers that could result from public trading.
But it is because of these private investments that the company’s value increases. For example, Twitter was valued at about $3.7 billion just one month ago. But thanks to $200 million dollars in funding from Kleiner Perkins Caufield & Byers (KPCB), an investment firm that favors online companies, their estimated value has actually jumped by $300 million, putting them squarely at about $4 billion dollars net worth (although some claim that they’ve actually been selling more “private stock”, putting them somewhere in the neighborhood of $6 billion).
Of course, it’s not all wine and roses. Privately traded companies have recently come under scrutiny by the Securities and Exchange Commission (SEC), which is in charge of monitoring markets, ensuring fair trade, and protecting investors. Since the private stock trade is, as advertised, private, it hasn’t exactly fallen under their rubric, but there are regulations in place to control such trading outside the purview of the SEC. As a result, they have launched a probe to determine whether this secondary trading violates SEC regulations.
But whether Twitter gets caught up in the proceedings, or even if they are subject to fines for such violations, the social networking site that lets people impart the goings-on in their lives (140 characters at a time) is not likely to suffer any long-term effects. Their trajectory looks to stay upward bound for the foreseeable future…you can bank on it.
Shirley Simpson writes for Ryson which specializes in vertical conveyors and incline conveyor systems to help reduce your business operation costs.
