Facebook offer not chirpy enough for Twitter

Twitter's decision to turn down a buy-out offer from Facebook may have been motivated by price, with Twitter turning up its nose at the $500 million stock offer.

So says Ovum analyst Madan Sheina, who says the key sticking point was likely whether the deal was actually worth $500 million.

"Could Twitter really look at itself in the mirror and justify a higher price, or even that price for that matter‾ After all, it is still without a revenue-generating business model," he says.

Facebook may have offered $500 million, but it was an all-stock offer, he explains. The value of this stock is likely inflated due to the practice of setting valuation based on a company's last transaction.

"In Facebook's case it has reportedly been set at around $15 billion, thanks largely to Microsoft's $240 million stake 13 months ago for greater advertising rights. But with the economy spiralling into a downturn that figure might seem to be exaggerated right now," he says.

Sheina expects this won't be the last time Facebook makes a play for Twitter, if only to stop the company from falling into the hands of rivals such as Google and Yahoo.

"[But] rather than grab a company that has yet to make a cent, a bigger revenue opportunity for Facebook would be to either compete with or acquire LinkedIn," he says.