Twitter IPO Papers Show Plenty Of Red Ink

Twitter has filed its public S-1 document to the Securities and Exchange Commission for an initial public stock offering.

And it did the filing a few weeks earlier than some analysts had expected.

No Profits

Its chosen identifier for the New York Stock Exchange ticker will be TWTR. The San Francisco-based social network plans to raise about $1 billion (£618m) in the stock sale, the first day of which likely will take place early next month.

Readers can see the public S-1 document here. It reveals that Twitter, which has been in business since 2006, has yet to make a profit.

In the prospectus, the social network reported a net loss of $79 million (£49m) last year and $69 million (£43m) for the first half of 2013. Even after adjustments for stock option compensation, depreciation and other items, the company still has suffered steady losses during its years as a private company.

Nonetheless, due to its growing worldwide influence, a steadily increasing list of users and an effective advertising reach, Twitter’s IPO still will be the most anticipated stock sale of 2013. Goldman Sachs will be the lead underwriter.

In its second quarter this year, Twitter reported 218.3 million average monthly active users, up a whopping 44 percent from a year ago. Revenue for the first half of this year was $253.6 million (£157m), more than double the first half of 2012, the filing reported.

Bloomberg News reported an estimate by eMarketer that the company will bring in $582 million (£360m) this year from advertising. Twitter also makes money by licensing use of its aggregated data to other companies.

“The accounting [for Twitter] is just not that hard for essentially advertising revenue. They literally only have three products, so it’s pretty easy to account for,” analyst Michael Pachter of Wedbush Securities told Bloomberg.

Valuable Company

Pachter said his firm has evaluated Twitter’s current worth to be “between $15 billion (£9.3bn) and $16 billion (£9.9bn), and that’s up from $9 billion (£5.6bn) to $10 billion (£6.2bn) a year ago.”

IDC tech analyst Crawford del Prete, adding perspective by comparing Facebook’s social network with that of Twitter, said, “Facebook is trying to create an index of people in the world; what Twitter is trying to do is create a new medium for people to communicate in real time – across multiple dimensions.

“This company can continue to see significant growth in the number of users that they have because they are transforming the way we communicate,” del Prete said.

The San Francisco-based social network, founded in 2006 by Jack Dorsey, has been ramping up its advertising products and working to boost ad revenue for more than two years in preparation for its IPO.

Analyst Opinion

Gartner Research analyst Brian Blau told eWEEK that he was among those who were surprised that the company was not yet profitable.

“I didn’t expect them to be profitable just yet, but the expenses were clearly there, and it’s at a significant level,” Blau said. “But also I see that expense as showing how they are investing for their future, meaning they still have to continue to build and push the business forward, and they need to invest internally.”

Twitter also is investing internationally, and expansion outside of the US/European Union is really a key for success, Blau said.

“Twitter has more serious competition outside of the mature markets where they already have established a solid level of penetration,” Blau said. “Growth has seemed to slow down a bit, but it’s not something that concerns me today; their growth over time appears robust, and I would expect fluctuations quarter to quarter, but if that slowdown continues over the next quarter or two, then there is real reason for concern.”

What does this IPO signify to the social networking market in general?

“The Twitter IPO is really a signal that social networking has come of age,” Blau said. “Twitter is the last of the Big 3 social companies to go public (Facebook and LinkedIn are the others), and each has carved out a section of the social marketplace. It’s these three social companies that represent the bulk of the brand equity that social enjoys around the world.

“Twitter has a unique place in the social marketplace, one that represents real-time news and information, a global water cooler where people can talk about all manner of current events and happenings in a way that is totally out in the public where anyone can join the conversation,” Blau said.

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Originally published on eWeek.