Make it something like $400/user. Having been an insider of 3 "Internet startups" in the past, I am assuming a 1:10 ratio of real active users vs total number of accounts in the database. BTW investors always asked us about the number of active users, followed by a question of "how do you define active"? Something like "logged into his account at least once within last week" is considered a very good measure of an active user.

It's simply ridiculous. Maybe we'll soon see a return to the dotcom tactics of alladvantage,themutual etc,etc - Pay people to become your "Users" so you can get more funding.

You can't ignore growth though. In many cases it's much more important than current active users. A product with 1mil active users and a 10x growth rate is much more valuable than a product with 5mil users and a 2x growth rate. The same calculation applies to stock valuations. A stock isn't priced by current earnings, but by expected future earnings.

Twitter has got some pretty impressive growth right now. I'm sure they are pitching reasonable plans to their investors for how they are going to make money. However, Twitter does seem overly cautious with rolling out any attempts to generate revenue.

I honestly think that Twitter could become The Next Big Thing(TM), so I don't think the investors are crazy for investing at a high valuation.

I think it's more likely investors have believed the hype rather than actually do any rigorous business analysis based on potential profit.

Can you elaborate on what leads you to that belief?

IMO: It's a social networking site which means the value of it's advertising space is significantly reduced. Due to SMS it's got a high cost per user. If they find a viable business model they are going to have a lot of competitors. I can't afford to charge content producers because that would quickly drive them to a competitor.

Which is why they don't have a competitor. It still looks like a crappy businesses that's at the mercy of the wireless industry. EX: If they could make money from SMS traffic face book would take about a month before they had a system like this running.

Or they can just do an SMS subscription plan, based on usage. First 10 are free, thereafter it's $5/month.