There are four characters on everyone’s mind right now: TWTR. The other 136 are irrelevant at the moment. Social media company Twitter officially released the details of its initial public offering after market close on Thursday, including its ticker (TWTR), its fundraising target ($1 billion), and a rough time table (the company hopes to start trading before Thanksgiving).
Now, if only they had a way to get the word out…
Twitter has long been a company with more question marks than firm answers, and its IPO filing answered at least some of them, filling in a backlog of details like total users (218 million active as of June) and executive pay (CEO Richard Costolo made $11.5 million last year, President of Global Revenue Adam Bain $6.7 million, and Senior Vice President of Engineering Chrisopher Fry $10.3 million).
The company also revealed significant year-over-year growth in the first half of the year, with users up 44 percent from the same period in 2012, and revenue increasing by 108 percent to $253.7 million. However, despite doubling first-half revenues, the company lost more money in that period than it had last year. The company lost $69.3 million in the first half of 2013, compared to just $49.1 million in 2012. In fact, Twitter lost a total of $79 million over the entire year in 2012, making the first half of 2013 a rapid increase in the pace money’s going out the door.
One may wonder out loud why investors are lining up for a company that’s on track for just $545 million in revenue this year and more than $100 million in losses. Why would people buy $1 billion worth of stock in a company that’s losing money, and losing it at a faster pace than it did last year? Well, for starters, revenues are ramping up quickly. The company’s $316.9 million in revenue in 2012 wa up from just $106.3 million in 2011, and it’s projected to hit $807 million in 2014. And while it appears headed to a year-over-year increase in losses, it’s probably going to end up well below the $164.1 million the company lost in 2011.
And what’s more, this is the tech sector. Twitter has captured the public imagination, and an influx of cash should be just what the company needs to monetize the millions of eyeballs its platform commands. That’s more than enough for many investors to go on as it has often been in the past for this sector.
Profits? Come on, get with it grandpa.
What really has investors salivating at the prospect of Twitter going public is how effectively the company has translated to mobile devices. One of the big questions that hounded Facebook (FB) in the lead-up to its IPO last year was how the company would generate ad dollars from mobile users, and one of the biggest reasons the company’s stock has taken off since the end of August 2012 (up over 170 percent) was showing improvement in that area.
Twitter, though, has the sort of success in mobile that Facebook still dreams about. Twitter’s filing boasted that 75 percent of users accessed the site via smart phones or tablets, and 65 percent of the company’s ad revenues came from mobile devices (compared to just 41 percent for Facebook).
Clearly, Twitter isn’t about to start challenging Facebook for social media supremacy. Because 65 percent of Twitter’s $220.6 million in ad revenue from the first half of 2013 is $143.4 million, and 41 percent of Facebook’s $2.9 billion in ad revenues over the same period is $1.18 billion (more than five times as much). Also, Facebook has profits, young’un. Despite the scale, though, Twitter is performing very well in an area that experts believe is where the future online ad revenues lie, and that should keep it attractive in the eyes of investors looking for a growth play.
Another major factor making Twitter’s IPO a different animal is Facebook’s presence in the market. Prior to Facebook’s IPO, the biggest social media platform in the world by several orders of magnitude remained private, making it difficult for people to value any company that existed in the segment. This probably played some role in Facebook losing nearly 50 percent of its value from May 25, 2012 to August 31, 2012. Now, with the world’s biggest player in the space anchoring the market, it’s entirely possible Twitter won’t receive the same level of skepticism that greeted Mark Zuckerberg’s arrival. The Global X Social Media ETF ($SOCL) is up over 50 percent this year, potentially showing that the market has found its footing in the social media segment.
Precisely what awaits Twitter on the open market isn’t entirely clear, but then, it never is. Facebook may be providing more stable ground for Twitter to land on, but the company could delay its much-anticipated IPO until next year if the government shut-down and/or debt-ceiling battle create a negative investment environment. Which makes sense, as this is one decision they can’t retweet.