It’s been in the works since the initial confidential filing in July, but yesterday it became official. Twitter is to go public and plans to raise around US$ 1 billion. Already with the filing only just in the door of the Securities and Exchange Commission (SEC), parallels are already being drawn with the Facebook IPO last year. Twitter executives, though, say it just ain’t so.
The differences with the Facebook IPO are already quite clear. Before it has started even canvassing potential share buyers, it is clear that there is a lot less hype around this IPO, that there will be a lot less money raised, and that Twitter executives are a lot more cautious about talking it up.
This is in stark contrast to Facebook where Mark Zuckerberg, who talked up a storm about the IPO, offered what the market said afterwards was far too many shares, and ultimately saw its share price collapse by 50% in the 3 months following the share offering.
It is hardly surprising, though, that Twitter executives should be taking a more cautious route. After the collapse of the Facebook share price, it took nearly a year for Facebook to gain its financial momentum again and only after it was able to exceed market expectations around its quarterly figures.
In fact, it was only at the end July this year, after it announced an increase in revenues of 53% to US$ 1.8 billion in Q2, that it finally managed to shake off the problems it had incurred with hyping the IPO.
But it was the increase in mobile ad revenues in particular -- up 41% in Q2 -- and Facebook’s clear ability to successfully operate in the mobile advertising space that convinced investors of Facebook’s ability to turn a buck.
Twitter, it seems, has been paying attention, particularly in light of the figures that appeared in the SEC IPO filing, which showed that despite doubling its revenues to US$ 254 million in the first 6 months of this year, its losses also grew.
In fact, its net loss grew to US$ 69 million, or 40%, as its expenses rocketed, and with share compensation to be paid after the IPO is finally achieved, it is likely that it will have a lot more money to pay out.
Twitter’s user growth has also slowed down as has the price of advertisements, which means that overall its ability to make money is falling. It has another problem too. While 75% of its revenues come from the US, 75% of its users come from outside the US and raises the question as to whether it will be able sell advertising to those users.
The SEC filing also showed that 75 percent of Twitter's average monthly active users accessed the service from phones and tablets, and more than 65 percent of its ad revenue came from mobile.
That said the filing shows it has 215 million active, monthly users that are pumping out 500 million tweets per day. This is in contrast to Facebook, which at the time of its IPO, had sales of US$ 3.7 billion, profits of US$ 1 billion, and nearly 850 billion users.
This is just the starting position for Twitter and things could change. Under SEC rules, Twitter now has to wait 21 days before it can start selling itself to investors.
Until then, it cannot say how many shares it will issue, or set a price for those shares. After that, companies usually go on the road to meet investors around the US -- a process that is estimated to take a week. This means that the IPO should be made sometime around the beginning of November. Until that point, there is not a lot more Twitter, or potential investors, can do.
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