Okay, here we go. IPOs are booming, as we told you earlier in the week, and Twitter’s ready to grab the cash. The social-networking company made its S-1 filing public yesterday, indicating it is looking to raise $1 billion in a public offering. It plans to trade under the symbol “TWTR.”
The roster of underwriters is a who’s who list of investment bankers: Goldman Sachs & Co., Morgan Stanley, J.P. Morgan, BofA Merrial Lynch, and Deutsche Bank Securities.
Described as the “global platform for public self-expression and conversation in real time,” Twitter now has 200 million active users, according to filing. And Twitter intends to monetize this audience primarily with advertising.
How’s it done so far? In 2012, Twitter had $316 million in revenue, up from $106 million in 2011. The company is still burning cash. It reported a net loss of $79 million in 2012. For the first six months of 2013, it had $253 million in revenue and a net lost of $69 million.
First reaction: It’s losing a lot of money. I knew that Twitter was not profitable, but for a company at this stage it’s losing too much money for me. I liked the fact that Facebook (FB) waited until it was profitable to go public. That’s old school. Anytime a company goes public losing $100 million per year it reminds me of 2000.
One interesting point here is that Twitter is much smaller than Facebook was at its IPO. When Facebook filed for a public offering, the company had $3.7 billion and a profit of $1 billion for 2011. It also had 845 million monthly active users
Twitter is at an earlier stage of development. It is burning money because the company is still building out its infrastucture, including the systems it needs to go public. It’s going to raise a huge amount of money and receive a large valuation. The S-1 filing indicates that Twitter most recently valued itself around $10 billion. But most people belief the IPO will price it much higher, possible worth as much as $20 billion. One concerning point: Twitter’s rate of growth in users has slowed in recent months.
Facebook currently has an incredible market cap of $123 billion, making it one of the most valuable companies in the world. Next year, analysts expect it to have about $10 billion in revenue and $2.5 billion in profit.
Like every Internet company, Twitter’s got cool metrics. It prefers Monthly Active Users (MAUs) to track its growth. These have gone from 30 million in March of 2010 to 218 million in June of 2013.
“MAUs are a measure of the size of our active user base,” says Twitter. “In the three months ended June 30, 2013, we had 218.3 million average MAUs, which represents an increase of 44% from the three months ended June 30, 2012. In the three months ended June 30, 2013, we had 49.2 million average MAUs in the United States and 169.1 million average MAUs in the rest of the world, which represent increases of 35% and 47%, respectively, from the three months ended June 30, 2012.”
Another thing Twitter is tracking is “revenue per timeline view.” This is the amount of dollars Twitter collects in advertising when somebody looks at somebody’s “timeline,” or record of Twitter postings. The ad revenue per timeline view has gone from $1.70 in March, 2012, to $2.17 in June, 2013.
Advertising is still ramping on Twitter. The company said the number of ad engagements increased 55%, 32%, 78%, 15% and 124% sequentially in the three months ended June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013 and June 30, 2013, respectively.
The three main advertising revenue models, where Twitter derives most of its revenue, are:
- Promoted Tweets. These are pay-for-performance advertising placed in a users’s timeline through targeted algorithms matching interests by content and sold by auction.
- Promoted Accounts. These are means by which users can gain access to a bigger audience of Twitter “followers” by buying payed placements priced through an auction. Twitter gets advertising revenue when a user follows a Promoted Account.
- Promoted Trends. These appear at the top of the list of trending topics for an entire day in a particular country or on a global basis. A Promoted Tweet created by the advertiser is displayed to the user at the top of those search results. These are sold on fixed-fee-per-day basis.
The fun part? Who’s going to make all the money. The largest shareholder, prior to the offering, is Co-founder Evan Williams, listed as a 12% owner. Benchmark Capital and partner Peter Fenton control 6.7% of the company, Co-founder Jack Dorsey controls 4.9% of the company, and CEO Dick Costolo controls 1.6% of the shares. Neither Williams or Dorsey are no longer active employees at the company but they both hold board seats.
Williams and Dorsey will likely be billionaires after this IPO.
Interestingly, there are ways to play Twitter before the IPO. GSV Capital (GSVC), a public investment company, owns shares of Twitter. Yesterday it said the value of GSV Capital investment in Twitter was worth $37.6 million, or 15.1% of net assets. The stock has a 52-week range of $6.84-$15.59 and was trading recently near that high.