What: Twitter announced its IPO under the ticker symbol TWTR, expecting to raise at least US $1B.
Why is it important: This is the most anticipated stock sale since Facebook went public last year. However, there are several concerns around its profitability.
Last Thursday evening, San Francisco-based social network Twitter made public its initial public offering filing with the US Securities Exchange Commission, its stock ticker symbol being TWTR. The filing indicates Twitter hopes to raise up to US $1 billion.
In its IPO filing, Twitter revealed that it has more than 200 million monthly active users –with 100 million of those deemed “daily active users”– who tweet 500 million tweets per day, and it stated that from 2011 to 2012, revenue increased by 198 percent to US $316.9 million, while its net loss decreased by 38 percent to US $79.4 million.
The company said the number of shares of common stock that will be outstanding after this offering “is based on 472,613,753 shares of their common stock,” including preferred stock.
Twitter also revealed in the prospectus that it earned far more of its advertising revenue from American users than from foreign users, and it noted that it was targeting Argentina, France, Japan, Russia, Saudi Arabia and South Africa for faster growth than in the United States. Analysts say the social network’s uses, ranging from sharing mundane thoughts on local television shows and sports to organizing social protests and political gatherings, has played a major role in its adoption in both emerging and developed countries.
Of all Twitter users, 75 percent used mobile devices to access the service, and the company said in its filing that it intends to “continue to increase the monetization of its platform” by improving its ability to single out users for “promoted” tweets, or ads, and by expanding its outreach to international advertisers. It stated as well that 75 percent of its users entered the service through mobile devices during the second quarter and that 65 percent of its revenue came from mobile ads. Nevertheless, prices for Twitter advertisements, which make up most of the company’s revenue, are falling, the prospectus indicated.
There’s a remarkable fact regarding Twitter users in emerging markets, however: many of them still use low-cost phones that are not fit to take advantage of Twitter’s mobile offerings, meaning the quality of its overseas customer base will depend partly on the continued penetration of higher-end smartphones. The company will also likely have to ramp up its global work force as it looks to increasing sell advertising in regions with multiple languages and cultures (not to mention it will have to fight to draw attention to its platform and away from rival services).
Twitter’s main streams of advertising revenue are thought to be promoted tweets, promoted trends and promoted accounts. According to the New York Times, Zachary Reiss-Davis, an analyst at Forrester, said the social network would eventually need to show how it could evolve its global advertising efforts and make its offerings more sophisticated.
“Twitter has done a good job of growing its international user base,” he said, “but now it has to work with marketers to create advertising experiences that work for those international users and for marketers.”
However, Twitter still faces a series of technical challenges in turning user interest into cold cash, ranging from spotty Internet connections to government bans on the service and fast-growing rivals.
Before the IPO filing was released, Santosh Rao, senior analyst and head of research at Greencrest Capital, said he did not believe Twitter was profitable yet, though if it is, “it’s probably very minimal, but that doesn’t concern investors.” And he added that “profitability is not a priority. Monetizing and revenue growth are what investors are interested in. Profitability will come later on.”