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What HootSuite's $165 Million Investment Round Tells Us About The Size Of Twitter's Ad Business

Jim Edwards   

What HootSuite's $165 Million Investment Round Tells Us About The Size Of Twitter's Ad Business

Ryan Holmes

Ryan Holmes / LinkedIn

Hootsuite CEO Ryan Holmes

Hootsuite, the social media marketing management company, just raised $165 million in a new fundraising round — and you can be forgiven for doing a spit-take upon hearing that news.

That's a massive sum for a startup.

Didn't Syncapse, another one of these "enterprise" social media outfits just file for bankruptcy? Hasn't anyone noticed that there are 260 "preferred marketing developers" at Facebook, all competing for the same slices of pie? Maybe someone oughtta pay attention to the fact that whenever we've gotten hard numbers on social media marketing businesses, it has turned out that they've never been profitable.

So here's the bullish case for Hootsuite, which tells us something about the size of Twitter's advertising business. We know very little about the scale of Twitter's revenues, so new information — even coming by proxy from one of its ad vendors — is extremely useful. (Some people estimate it at $1 billion. But no one really knows.)

First, Hootsuite is one of only five Twitter Ads API partners — the companies who are allowed to sell dashboards that plus ads straight into the Twitter platform. That number will expand but Hootsuite has a huge advantage right now.

Second, Hootsuite says it has 7 million customers, although a majority of those probably use the interface for free. Hootsuite says it has 79 or more Fortune 100 companies using its tools.

CEO Ryan Holmes says his revenues have grown 300%. (But note that the company doesn't disclose hard dollar numbers. Hmm.)

One reason we should take the investment seriously is that it comes from Insight Venture Partners, the New York-based firm that already holds a substantial stake in Twitter, according to VentureBeat. One presumes that IVP has enough visibility into Twitter's business to know whether a $165 million bet on a vendor will pay off.

And then there's the risk. Ad Age notes:

CEO Ryan Holmes said HootSuite is charging enterprise clients anywhere from five figures annually up to the high six figures. He said he's pursuing seven-figure deals where tens of thousands of employees within an organization would be using the software.

... HootSuite is "cash flow neutral," according to a spokeswoman, with all profits being reinvested in the business.

Let's do some back-of-the-envelope math. If Hootsuite has 80 companies paying six figures in revenues annually, then a large portion of its revenue would total just $8 million, annually.

That is far below the level needed to pay back the $187 million the company has taken in funding so far.

We must therefore assume that IVP and Hootsuite know their business with Twitter is far, far larger than that.

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