The S-1 filing for Twitter was released last week, a document which provides information about Twitter’s intentions for their upcoming IPO, the financial details of the company and other considerations in order for their shares to be listed. The document discloses some significant information, and offers interesting insights into Twitter Inc. Here’s a breakdown of some of those findings and what it means… in 140 characters or less.
Twitter will trade under the stock ticker, ’ TWTR’, but the current exchange listing is undecided
Hilariously, traders mistook a company’s shares previously listed as ‘TWTR’, Tweeter Home Entertainment Group, as the Twitter shares last week. Tweeter saw their most active trading day in six years, with their value increasing by more than 684% before trading was halted by FINRA. The company went bankrupt in 2007 and has previously traded less than 1,000 shares per session.
Twitter valuation projections range between $15- $40bn, and the IPO is looking to raise $1b
In the initial offering filing Twitter revealed the company values itself at $12.8bn based on the current fair value of its shares (including equity awards) and $9.7bn based only on shares outstanding. Investors tip that Twitter is likely to be valued at around $15-20bn post IPO, and the company is also reportedly open to raising $2b should investor talks and road shows run successfully.
Twitter plans to float with one class of stock and one vote per share, comprising a total of 472,613,753 shares after the offering
This means that Twitter shareholders will have a more ‘democratic’ control of the company, without currently large holders and founders afforded any additional control or rights (ie no super majority voting rights). Notable shareholders include co-Founder Evan Williams, who has the largest shareholding of 12%. Board member Peter Fenton comes in second with 6.7%, a venture capital firm Benchmark Capital owns 5%, Twitter co-founder and creator Jack Dorsey has 4.9%, and CEO Dick Costolo has 1.6%.
Twitter has 215m MAUs and 100m+ DAUs globally, who collectively Tweet approximately 500m times per day
Given the scope of individuals who access the internet and social media regularly, Twitter sees opportunities to grow these monthly active users (MAUs) and daily active users (DAUs), with current year-on-year user growth rates at 35% in the US and 47% globally.
Twitter is not currently profitable, but revenue is increasing (by 198% from 2011-12) and net loss is decreasing (by 38% from 2011-12)
Twitter’s losses can be attributed to a number of acquisitions and by a significant research budget. Expenses jumped 87% in the first six months of 2013, driven significantly by $111.8m expenditure on research; over 44% of the $253.6 million they’ve generated in revenue over the same period.
Mobile use is a “critical”, “primary value driver” to Twitter, and is expected to become more significant
75% of their average MAUs accessed Twitter from a mobile device, and 65% of advertising revenue was generated from mobile devices. Comparatively, Facebook’s current mobile advertising revenue is at 41% (and was at almost 0% at its IPO date). Twitter sees mobile as an avenue for growth, capitalising on Twitter’s “second-screen” usage and ‘real-time’ advertising as monetisation opportunities. Twitter also highlights that mobile advertising will grow from 2012 to 2017, projecting a market increase from $10bn to $52.2bn.
Mobile could save Twitter from an IPO fate like Facebook
The issues around Facebook’s ability to monetise mobile was a large contributor to the share price fall by over 50% following their May 2012 $38 price. It wasn’t until Facebook reported mobile advertising increases that investors regained confidence. Their share price has since increased, reaching over $38 in July 2013. The focus on mobile should be a promising sign for investors considering purchasing Twitter stock.
Twitter has been growing quickly
In the last three years, the number of staff have increased from 200 to 2,000 employees. The company has made a number of acquisitions, and saw revenue increase by 198% in 2012.
Twitter’s future growth strategy is contingent on their three primary constituents; users, platform partners, and advertisers
Twitter is looking at geographic user expansion, mobile application development, and the building and acquisition of new products to increase their number of users. They see the growth in platform partners to be complementary to user growth, expansion plans to integrate more content into the Twitter platform, and their content distribution opportunities with traditional media. Twitter also anticipates that advertisers will be enticed by enhanced services such as targeting, and new advertising formats such as Twitter Cards and Twitter Amplify.
Twitter generates revenue from advertisers through ‘Promoted Products’
In 2012, Twitter generated 85% of its $317M in revenue from advertising. Twitter sells Promoted Tweets, Promoted Accounts and Promoted Trends to advertisers in order to generate this revenue. They are looking towards implementing various new advertising opportunities on the platform, and have recently done so with Twitter Cards. Twitter acknowledges that they do not currently hold long-term advertising commitments with advertisers, nor are their Promoted Products always viewed as ‘proven’. Being so reliant on advertising revenue, Twitter explicitly states that harm to the business would ensue should this decrease.
Twitter approximates that they gain $0.80 per timeline view
Not quite disclosing their ‘average revenue per user’, Twitter speculates they generate 80 US cents per 1000 timeline views. The figure is based on data from April, May and June in 2013, and equates to US $0.008 per view. This is 26% higher than for the same period last year, a positive indication of revenue growth for the company. For the US, revenue per timeline views was $2.17, much higher than the $0.30 figure globally over the same period. These global figures have promisingly increased by 111% year-on-year, likely due to the increase in advertising products that Twitter has been releasing.
Twitter is also in the data business
The company offers licenses that allow data partners to access, search and analyse historical and real-time data on the platform, which is used to generate and monetize data analytics, identify user sentiment, influence, and other trends. Twitter’s revenue from data increased by 53% in the last year, making over $32m through data licensing deals.
Don’t expect dividends anytime soon
Given Twitter currently operates at a loss, and projected profitability is highly contingent on future operations and the outcome of the IPO, Twitter intends to retain any future earnings.
They’re a bit vague on what they‘ll be spending their money on
Twitter has stated the following: “general corporate purposes, including working capital, operating expenses and capital expenditures… to satisfy our anticipated tax withholding and remittance obligations related to the settlement of our outstanding RSUs, … [and] to acquire businesses, products, services or technologies.”
Twitter faces interesting conditions for their initial public offering
They enter the market at a stage where over-hyped tech and social media companies (*cough* Facebook , Groupon, and Zynga) have left investors burned, and traders sceptical about the true value of such companies. Many point to signs of a forthcoming ‘tech bubble’ and the risk of overvaluation, inability to monetise, and the reliance on user trends seeing share prices fall from initial offering prices. The fair price for Twitter shares is yet to be decided, where lack of profitability, difficulties in pricing the value of each user, or connecting the value to advertising dollars lacks clarity. Additionally, the state of the market and the confidence of investors will be critical for Twitter’s IPO. If all goes to plan however, the future success of Tweeting should be more than fleeting.
Disclaimer: This article is intended for commentary only and does not constitute financial advice.