Is Twitter Worth a Billion Bucks? - (Source: BusinessWeek)

Twitter’s latest funding round values the microblogging site at $1 billion. Can the company become profitable enough—or profitable at all—to justify that valuation?

By Stephen Baker

Twitter’s home crowd can be pretty tough. When reports emerged on Sept. 24 that the microblogging service was close to securing $100 million in funding that valued the company at $1 billion, flurries of 140-character jeers flooded the service. "Nutty valuation," wrote @Nicklippis. "I’ve seen this movie before," twittered @ericclovesbacon. "It starred eToys.com and ended in fail."

True, a billion dollars for a company with virtually no revenue recalls the excesses of the dot-com era. The logic behind Twitter’s valuation comes straight from the very same school. It views Twitter less as a single company than as the base for a whole realm of communication and data. "It is an increasingly important platform for business and consumers," says Seth Levine, managing director of Foundry Group.

The bet, quite simply, is that Twitter can become enormous—a rich new source of business intelligence, a channel to reach targeted consumers around the world, and a hothouse for marketing and news startups. The risk, of course, is that Twitter may stall along the way and be remembered in a couple of years as a quirky fad. Or it may end up in the belly of one of its neighbors, Facebook or Google (GOOG).

But for investors eager for a chunk of the next great thing, how many other possibilities are out there? "Once every five years or so, a company comes along that has nearly unlimited potential in terms of worldwide users," says Paul Holland, a general partner at Foundation Capital. "Five years ago, it was Facebook. Today, Twitter appears to be the ‘next big thing’ in social networking."

With the $100 million in new investments, Twitter has plenty of shopping money to extend its reach. Acquisitions, observers say, are likely to focus on two hot spots: search and marketing intelligence that companies can use to learn more about customers and potential markets. Twitter’s funding was reported on Sept. 24 by The Wall Street Journal.

Harnessing the Real-Time Web

Click here for MORE: Is Twitter Worth a Billion Bucks? – BusinessWeek