NEW YORK( TheStreet) -- After the post-IPO letdowns of Zynga ( ZNGA), Pandora ( P) and Angie's List ( ANGI), Saudi Prince Alwaleed bin Talal's $300 million investment in Twitter on Monday signals a potential new way to invest in the bubbling social media sector. Like other previous investments made by his fund Kingdom Holding Co., Alwaleed may be targeting a turnaround with his near 3% stake in Twitter, one of the Web's most ubiquitous properties.
"Our investment in Twitter reaffirms our ability in identifying suitable opportunities to invest in promising, high-growth businesses with a global impact," said Alwaleed in a statement announcing the purchase. On Monday, Fortune magazine reported that Alwaleed is likely buying into Twitter from exiting investors without making a direct capital investment in the company. Prince Alwaleed is making his Twitter stake as the company irons out a revamped business model that he hopes will leverage outsized profits from its brand, in a similar fashion to earlier investments in Apple ( AAPL) and Priceline.com ( PCLN). "Prince Alwaleed typically has looked for investments in very strong brands that -- for whatever reason -- have fallen on challenges," says Scott Kessler, an analyst with S&P Capital IQ. Kessler compares the Twitter investment to previous moves by Alwaleed to put money into Apple and Priceline.com. During the bursting of the technology bubble in 2002, Alwaleed took a $100 million stake in Priceline, representing 5.4% of the company's shares, in a bet that it and others like eBay ( EBAY) would survive the slowdown that hit Silicon Valley and Wall Street. Alwaleed invested in Apple beginning in 1995 as the company was suffering from giant losses, competitive pressures from Dell ( DELL) and Microsoft ( MSFT) and management change before the return of Steve Jobs. Even as Apple and Priceline.com struggled, both companies remained brand names in their respective computers and travel sectors, a key piece of Alwaleed's investing strategy. Alwaleed's stake purchase in Twitter may signal a similar investment in one of the most recognizable media properties on the Web. "I think there are a lot of questions about the people leading the company and its business model," says Kessler of S&P. By calling the move "strategic," Kessler says that Alwaleed is likely targeting a long-term investment in a global brand at a valuation that reflects management turnover and a still uncertain business model. For more on social media, see our portfolio of 5 social networking stocks to watch. Currently, there are over 250 million Tweets per day and 100 million daily active visitors to the site, according to a Monday press release from Kingdom Holdings. The New York Times reports that in its most recent quarter, Twitter saw 2,000% growth in Arabic language Tweets in the year ended in October. The Web site has been central to protests such as the Arab Spring in Egypt, Syria and Libya, in addition to the Occupy Wall Street demonstrations this fall. Time magazine distinguished "the protester" as its person of the year in December.
Twitter is in the process of redoing its Web site to post 140-character messages and links, by making it quicker and easier to navigate. The San Francisco-based company, founded in 2006, is also rolling out new online ad screens to wrench out ad revenue from the searching and posting activity of its users. With more bolstered revenue generation and increased consistency in crucial board and management roles, Alwaleed's investment in Twitter may one day prove to be opportunistic. In 2010, Twitter Chief Executive Evan Williams stepped down and was replaced by the company's COO Dick Costolo. In 2011, Fred Wilson and Binjan Sabet both resigned from Twitter's board of directors, according to AllThindsD reports in September. While Twitter's ad revenue and user base are expected to increase in coming years, that growth is slowing. Web data firm eMarketer forecasts that Twitter will earn nearly $140 million in revenue in 2011, a 210% jump from 2010. That revenue number was cut from earlier projections of sales as high as $150 million. In addition, the company is expected to see its sales growth slow to 86% in 2012 and to 53.7% in 2013, which will put revenue at nearly $400 million in two years' time, according to eMarketer. This summer, Twitter raised $400 million from private investors including Russian venture firm DST Global, which valued the company at $8 billion. For investors in highly used social media companies, private stake sales may be a way to target returns ahead of an initial public offering. In January, Goldman Sachs ( GS) invested $500 million in Facebook, valuing the company at $50 billion. The Wall Street Journal reported in November that Facebook is targeting a spring 2012 IPO of $10 billion in shares, valuing the company at $100 billion, double January valuations.
In contrast to the increasing value of Facebook as it remains private, newly public Web companies like Zynga, Groupon ( GRPN), Pandora, Angie's List and LinkedIn have all faltered after their first day of trading.Monday's Twitter investment also shows an increasing technology and media focus by Alwaleed, according to Kessler of S&P. Through Kingdom Holding, Alwaleed currently has major public share stakes in old-media giants like News Corp. ( NWSA), Time Warner ( TWX) and Disney ( DIS) in addition to a near-30% investment in the Saudi Research and Marketing Group, which owns Arab News, among other newspapers and magazine in Saudi Arabia. Alwaleed's been hit hard by some investments in 2011, including his near 7% holding in News Corp., a giant stake in General Motors ( GM) and his near 9% investment in Citigroup ( C), which has seen its shares fall nearly 50% year to date and more than 90% since the onset of the financial crisis. -- Written by Antoine Gara in New York