Twitter? Profitable? Really?

A report in BusinessWeek says that Twitter will have turned a profit in 2009 thanks to search deals from Google and Microsoft. Legit, or fuzzy math?

Caroline McCarthy Former Staff writer, CNET News
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos.
Caroline McCarthy
2 min read

This one's a surprise. Twitter will have turned a profit in 2009, a BusinessWeek report claims, citing sources. What happened? Search deals with Google and Microsoft brought in a nice chunk of cash for the company, which has raised well over $100 million in venture capital and has a paper valuation floating somewhere around $1 billion.

Considering the company has not yet put forth a long-term revenue strategy, this would be one of those Christmas miracles along the lines of a neurotic mom getting home to her stranded 8-year-old by fortuitously hitching a ride with a polka band fronted by John Candy.

So let's look at the details. Sources told BusinessWeek's Spencer Ante that Twitter's search deals with Google and Microsoft's Bing brought in $15 million and $10 million respectively, and that Twitter has managed to cut some of the high costs related to text-message functionality. (These costs were so exorbitant that Twitter temporarily had to restrict some international SMS codes.) OK, cool. Those numbers are decently plausible, and Twitter's strategic hire of a mobile business-development dude early this year likely had something to do with it. And Ante's article makes it clear that while sources have told him that Twitter will end 2009 on a profitable note, that doesn't mean it's going to be profitable next year.

But there's a difference between being cash-flow positive and being profitable, and it's also not totally clear as to what Twitter's other expenses are, or what they will be next year.

Ante writes:

Now that Twitter has become so popular, it has gained bargaining power with telecom companies and has managed to renegotiate so many deals with carriers that the company pays far less for the services. "Those used to be the biggest line item," says one source. "Generally speaking, those costs have gone away. Now people are the biggest line item."

People. Yes. Like the new office space they just moved into, and their still-expanding payroll, and stuff like that. Also: hardware, and other forms of defensive weaponry against evil whale attacks. The company also sometimes buys stuff, and continues to develop new features--like the current test of "contributors" accounts that it may end up charging for. So even with costs cut via a savvier mobile strategy, there are plenty of other costs that could be escalating simultaneously.

What's good news for Twitter is that getting $25 million out of search deals (if that's indeed true) shows that the company could expand that into a stronger long-term revenue strategy. Critics have been lukewarm on the possibility of Twitter attempting to support itself with advertisements or paid accounts, and nobody's really gone into depth on the question of whether the businesses currently raving about Twitter's power of "conversation" will cough up for more in-depth analytics.