Twitter's $1 billion IPO plan holds promise
Twitter has finally made its IPO filing public, clearing the way for one of biggest and most hyped IPOs since Facebook went public in May 2012. The filing comes after the company tweeted last month that it had filed confidential paperwork to begin the IPO process. The roughly 800-page filing on the much anticipated IPO contains interesting accounts about its growth and its attempts to be profitable from the various services.
Here are a few interesting observations based on the filing.
Exciting growth story
Twitter has an interesting growth trajectory. After co-founder Jack Dorsey sent out the first tweet in March 2006, the company didn’t even try to make money for its few years. Instead, management focused on attracting more users and making the service more reliable. It looks like Twitter’s patient approach is paying off. Since former Google executive Dick Costolo became Twitter’s CEO in 2010, the company’s annual revenue increased from $28 million to $317 million last year. Through the first half of this year, Twitter’s revenue totaled $254 million, more than doubling from last year. If Twitter maintains that growth pace through the second half, the company’s revenue will surpass $656 million this year.
(Read: Is Twitter overstating stats to create hype? http://www.cxotoday.com/story/is-twitter-overstating-stats-to-create-hype/)
Twitter has shown steady growth in advertising sales, and investors will value the stock based on their expectations of future revenue and profit.
Zachary Reiss-Davis, an analyst at Forrester told WSJ that the social network would eventually need to show how it could evolve its advertising efforts and make its offerings more sophisticated. “Twitter has done a good job of growing its international user base, but now it has to work with marketers to create advertising experiences that work for those international users and for marketers,” he said.
(Read: Twitter hopes to learn from FB’s IPO mistakes. http://www.cxotoday.com/story/twitter-ipo-can-be-a-strategic-move-say-experts/)
But it was steadily losing money…
Despite exciting growth plans, it was clear that the company has suffered uninterrupted losses of $419 million since its inception. According to sources, in 2012, Twitter had revenue of $316.9 million, up from $106.3 million in 2011. Net loss was $79.4 million, compared to a net loss of $164.1 million in 2011. Twitter survived as it has raised $759 million from investors. The company still had $375 million in the bank at the end of June and hopes to raise at least $1 billion more in its IPO, according to sources. In contrast, both social networking leader Facebook and professional networking leader LinkedIn were profitable when they went public. So this was the best possible option for Twitter.
(Read: What should Twitter be worried about. http://www.cxotoday.com/story/what-should-twitter-be-worried-about/)
Market value could reach $20 billion
Twitter hasn’t set a price target for its IPO yet, but its documents contain some clues about its recent market value. But according to a Forbes report, the company’s stock last sold in a privately arranged swap nine months ago at $17 per share. Some analysts predict Twitter will seek $28 to $30 per share in its IPO. Going by those projections, Twitter will have a market value of $17 billion to $20 billion, including stock options and restricted stock likely to be converted into common shares after the IPO. Facebook made its stock market debut with a market value of more than $100 billion, even though its stock fell before making resounding comeback this year.
“The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our stockholders,” according to a Twitter statement.
Twitter did not mention the name of the exchange in the filing, keeping it open ended for both NYSE and Nasdaq, like most companies filing IPO. The list of underwriters include: Goldman Sachs, Morgan Stanley, J.P. Morgan, Bank of America Merrill Lynch, Deutsche Bank, Allen & Co. and Code Advisors LLC.
Looking outside USA
Twitter said it had 218.3 million monthly active users, an increase of 44% from the 151.4 million on 2012, but it feared that the growth might slow down. “We anticipate that our user growth rate will slow over time as the size of our user base increases.” Currently, it said a higher percentage of Internet users in the U.S. are on the site compared to overseas, and it expects growth rates in overseas markets in Asia, Africa, Latin America and some parts of Europe - will be higher than growth rates in the U.S.
Banking on mobile, new Ad strategies
Mobile is booming for Twitter and this is what is drive its growth. Twitter says in the last quarter, 75% of its average monthly users accessed Twitter from a mobile device, which includes tablets. Over 65% of the ad revenue in the quarter was generated on mobile devices. Recently Twitter acquired mobile ad exchange company MoPub for $350 million in stock, showing its larger advertising ambitions beyond its own Twitter ads. MoPub offers ad services on a variety of publishers’ apps beyond Twitter.
The company has entered the mainstream, “new advertising strategies, such as television targeting and real-time video clips embedded in tweets. This could be very powerful for the company. Meanwhile on the advertising side, major brands are lining up–Twitter partnered last month with CBS to run video ads for many CBS shows. To make money, Twitter will likely get more aggressive about ads.
Insider story – Winning the jackpot
Evans Williams, a Twitter co-founder who was CEO for two years until Costolo took over in 2010, owns a 12% stake in the company. If Twitter turns out to be worth at least $17.60 per share in the IPO, Williams will be a billionaire at 41 years old, say sources. Another board member, Peter Fenton, and his venture capital firm, Benchmark Capital, own a 6.7% stake. Many of Twitter’s 2,000 employees could become rich, too, if the company’s stock fares well, believe analysts.
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