Twitter finally reveals revenue as IPO looms

SAN FRANCISCO — Twitter unsealed the documents for its planned initial public offering (IPO) of stock yesterday (Oct 3) and said that it hopes to raise up to US$1 billion (S$1.25 billion) in the largest Silicon Valley IPO since Facebook’s 2012 coming-out party.

The company is also revealing for the first time the amount of money it makes, hoping to woo investors with rip-roaring revenue growth despite never having made a profit in the past three years.

Founded in 2006, Twitter has never turned a profit and has an uninterrupted history of losses totalling US$419 million since its inception. But its revenue is growing.

In a short message from “@twitter”, the company outlined its mission as giving “everyone the power to create and share ideas and information instantly without barriers”.

“Our business and revenue will always follow that mission in ways that improve-and do not detract from-a free and global conversation,” Twitter added.

The San Francisco-based Twitter disclosed three weeks ago that it filed confidential papers to start the IPO process.

The eight-year-old microblogging service, the preferred communications tool for celebrities and politicians alike, gave potential investors their first glance at its financials yesterday when it publicly filed its IPO documents with the Securities and Exchange Commission, giving potential investors and its user base a look inside its business.

The company was taking advantage of federal legislation passed last year that allows companies with less than US$1 billion in revenue in its last fiscal year to avoid submitting public IPO documents.

The company said that it generated US$317 million in revenue in 2012, driven largely by advertising, and that it had more than 218 million active users as of the end of June, up 44 per cent from a year earlier. That compares with Facebook’s nearly 1.2 billion and LinkedIn’s 240 million.

The company also said that it lost US$69.3 million in the first six months of 2013, compared with a loss of US$49.1 million for the same period last year. Revenue more than doubled to US$254 million from US$122 million.

AD PRICES FALLING

Although its user base was expanding steadily, Twitter warned that the ad prices it commanded from marketers had been falling for the past five quarters, signalling that the effectiveness of its key money-maker, the “Promoted Products” suite, may be waning.

The average cost per ad engagement slid 46 per cent in the June quarter, compared with the previous quarter.

But the company added that ad prices have gone down as a result of a conscious, long-term effort by the service to rapidly expand its available inventory and change its algorithm to distribute ads throughout each day.

Twitter noted that revenue has risen because this strategy attracted more advertisers, especially small- and medium-sized businesses as well as international clients.

“We generate the substantial majority of our revenue from advertising. The loss of advertising revenue could harm our business” the company said in its filing.

Twitter’s IPO has been long expected. Its moneymaking potential has minted the company with an estimated market value of US$10 billion, based on the appraisals of venture capitalists and other early investors. The IPO could value it higher or lower.

The company has been ramping up its advertising products and working to boost ad revenue in preparation. But it is still tiny compared with Facebook, which saw its hotly anticipated IPO implode last year amid worries about its ability to grow mobile ad revenue.

When the world’s largest social network debuted, concerns centred around its inability to fully earn revenue off mobile users.

But Twitter appears to have less of an issue with mobile. About 65 percent of its revenue derives from mobile users, it said.

STOCK CODE COULD BE ‘TWTR’

Twitter’s debut will be the culmination of its journey from side-project to sociocultural phenomenon, today the platform of choice for everyone from the Pope to President Barack Obama.

Twitter’s appeal is in its simplicity. Users send short messages — either public or private — that consist of up to 140 characters. Anyone can “follow” anyone else, but the relationship doesn’t have to be reciprocal, which makes the service especially attractive for celebrities and companies that use Twitter to communicate directly with customers.

Twitter has 2,000 employees, up from 200 at the start of 2010.

Twitter did not say which stock exchange it plans to list its shares on, though the company said it intends to use the ticker symbol “TWTR.”

The underwriters of the offering are Goldman Sachs, Morgan Stanley, JP Morgan, BofA Merrill Lynch, Deutsche Bank Securities and CODE Advisors. AGENCIES