How Much Will Google Pay for Twitter?

There are three companies that we know are interested in or “hungry” for Twitter: Microsoft, Google and Facebook. In an article on bubbly valuations, the Wall Street Journal says that Twitter is again in “low-level” acquisition talks:

Executives at both Facebook Inc. and Google Inc., among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service . . .The talks have so far gone nowhere, these people say. But what’s remarkable is the money that people familiar with the matter say frames the discussions with at least some potential suitors: an estimated valuation in the neighborhood of $8 billion to $10 billion.

In December Twitter was valued at just under $4 billion. But let’s assume the stated valuation of $8 billion to $10 billion in the Journal article is accurate. Who could afford Twitter at that price?

Facebook would have to use a combination of cash and stock with the promise of an IPO in 2012 to lure board members and Twitter executives to accept. Google and Microsoft could pay cash. Both companies without a social network of their own are hungry for such an acquisition and could spark a bidding war.

Then again, Twitter could build its advertising model and later go public. It’s estimated that Twitter earned just under $50 million in revenue last year and could earn up to $150 million this year.

Google would likely be very aggressive bidding for the company because of its desire to counter Facebook and have a bona fide social offering. Facebook doesn’t “need” Twitter and can’t put as much cash on the table. Microsoft also wants Twitter (it couldn’t have Facebook), and would love to prevent it from falling into rival Google’s hands.

It wouldn’t be hard to imagine Google or Microsoft paying $8 billion in cash for the site. Google was willing to pay $6 billion for Groupon.

Twitter has turned down multiple acquisition offers in the past and the company just took $80 million from Andreessen Horowitz. That followed a Kleiner Perkins-led $200 million round at the end of last year. That behavior doesn’t seem like a company seeking to be acquired but instead like like a company bulking up for longer-term growth and a potential IPO.

My guess is that there’s a limited appetite to be a public company and that Twitter will agree to be acquired at some giant multiple later this year.