Twitter reveals rip-roaring growth, big losses ahead of IPO# Stock
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SAN FRANCISCO (Reuters) - Twitter Inc, racing toward the largest Silicon
Valley IPO since Facebook Inc's 2012 coming-out party, hopes to woo
investors with rip-roaring revenue growth despite having posted big losses
over the past three years.
The eight-year-old online messaging service gave potential investors their
first glance at its financials on Thursday when it publicly filed its IPO
documents, setting the stage for one of the most-anticipated debuts in over
a year.
Twitter's debut will be the culmination of its journey from a side-project
to a sociocultural phenomenon, one that has become a communications channel
for everyone from the Pope to President Barack Obama. Last month, Iranian
President Hassan Rouhani used Twitter to disclose a "historic" phone
conversation with the U.S. President.
The service's emphasis on real-time communication - whether it be about
breaking news or chatting with friends about a TV show on air - sets it
apart from rivals such as Facebook.
Now, though, the company must prove to Wall Street it can continue to make
money, even as growth slows after a period of explosive expansion around the
world.
In Thursday's filing, the first public disclosure of financial figures,
Twitter reported that revenue almost tripled to $316.9 million in 2012. In
the first half of 2013, it posted revenue of $253.6 million but had a loss
of $69.3 million.
The numbers were mostly in line with the estimates of outside analysts. The
company began selling advertising in earnest only in 2010, devising a means
for ads to appear in the message streams of users that has proven effective
for both desktop computers and mobile devices.
The losses are "a non-issue," said Brian Wieser, analyst at Pivotal Research
Group. "It would have been a surprise if they had a profit."
In the laundry list of risk factors that's typically appended to all company
IPO filings, Twitter warned it was heavily reliant on advertising revenue.
It said more than 87 percent of its revenue came from advertising in the
first half of 2013.
The prices Twitter can command for ads has actually fallen over the past
five quarters. But the company said that decline was the result of a
conscious effort to rapidly expand its available inventory and change its
algorithms to distribute ads more frequently throughout each day.
Revenue has risen because the strategy attracted more advertisers,
especially small- and medium-sized businesses and international clients, it
said.
Still, the company acknowledged the uncertainty of the volatile and highly
competitive online advertising market.
"Advertisers will not continue to do business with us, or they will reduce
the prices they are willing to pay to advertise with us, if we do not
deliver ads in an effective manner, or if they do not believe that their
investment in advertising with us will generate a competitive return
relative to alternatives, including online, mobile."
CULMINATION
Twitter's target is to raise $1 billion, a figure devised mainly for
registration purposes and that will change as the company embarks on a
roadshow to sell its IPO to investors.
Assuming everything goes smoothly, it could begin trading in November,
though it has not revealed which U.S. exchange -- the New York Stock
Exchange or the Nasdaq -- it has chosen.
Wherever it lists, its debut is likely to cause waves across Wall Street and
the industry, potentially breathing new life into the market for consumer
Internet companies and influencing the value of all social media companies.
Some analysts estimate Twitter could be worth as much as $15 billion. That's
a fraction what Facebook was worth at the time of its debut, but Twitter's
profile is just as high.
Indeed, its more established rival is borrowing a few pages from Twitter's
book, particularly in its approach to mobile advertising. On Thursday it
announced an advertising initiative for its Instagram unit, which competes
most directly with Twitter.
Since Twitter was spun out of a struggling San Francisco startup in 2006, it
has grown to approximately 2,000 employees based in 15 offices around the
world. Along the way, it helped create new ways for advertisers and
corporations to reach audiences, from a "promoted tweets" model now
replicated by Facebook and other Internet platforms, to its "second screen"
approach to encouraging real-time debate around television programs.
More importantly, it has helped redefine the nature of global communications
, linking once lofty and unreachable politicians, celebrities and
journalists with millions around the world.
Its staunch advocacy of free speech around the world - nothing other than
direct personal threats are barred from Twitter - has helped it become an
important avenue through which news and viewpoints are shared, from the
first inklings of the U.S. military assault on Osama bin Laden's compound to
Obama's tweeting "Four more years" when he won re-election.
Twitter's IPO has already drawn multiple comparisons to Facebook. When the
world's largest social network debuted, concerns centered around its
inability to fully earn revenue off mobile users.
Twitter appears to have less of an issue with mobile. About 65 percent of
its revenue derives from mobile users, it said.
The service had 218.3 million monthly active users, on average, in the three
months ended June 30. Three-quarters of its monthly active users are
considered mobile users, it said in the filing.
But Twitter managed only average revenue per user in the second quarter of
2013 of 64 cents compared to Facebook's roughly $1.60, according to Reuters'
calculations.
TAKE HEART
Investors can still muster some cheer from Facebook's revenue and
profitability track. The social networking site pulled in $272 million in
revenue in 2008 but lost $55 million, according to Facebook's S-1 document.
In 2009, it swung to a profit of $262 million after increasing its revenue
nearly three-fold to $777 million. Facebook is now solidly profitable.
Twitter, which went through a period of management turmoil and internal
strife in its early years, did not append a letter from the founders to the
filing, unlike Internet companies such as Facebook and Google before it.
Co-founder and former CEO Evan Williams is Twitter's largest shareholder,
with 12 percent of the shares, while co-founder and chairman Jack Dorsey
owns 4.9 percent. Biz Williams, another co-founder, does not appear on the
list of top shareholders. Current CEO Costolo owns 1.6 percent.
Among institutions, Benchmark and affiliated entities own 6.7 percent of
shares, while Rizvi Traverse Management, Spark Capital, Union Square
Ventures and DST Global are each shareholders of 5 percent or more.
Suhail Rizvi, the little-known head of Rizvi Traverse who has helped himself
and his investors amass stakes in Twitter since 2011, would count among the
largest institutional shareholders, according to sources familiar with its
investments.
Twitter intends to list common stock under the symbol "TWTR." Goldman Sachs,
Morgan Stanley, JPMorgan, BofA Merrill Lynch, Allen & Co, Deutsche Bank
Securities and Code Advisors are managing Twitter's IPO.
(Reporting by San Francisco newsroom, Writing by Edwin Chan, Editing by Phil
Berlowitz, Bob Burgdorfer, Edwin Chan and Kenneth Maxwell)
Valley IPO since Facebook Inc's 2012 coming-out party, hopes to woo
investors with rip-roaring revenue growth despite having posted big losses
over the past three years.
The eight-year-old online messaging service gave potential investors their
first glance at its financials on Thursday when it publicly filed its IPO
documents, setting the stage for one of the most-anticipated debuts in over
a year.
Twitter's debut will be the culmination of its journey from a side-project
to a sociocultural phenomenon, one that has become a communications channel
for everyone from the Pope to President Barack Obama. Last month, Iranian
President Hassan Rouhani used Twitter to disclose a "historic" phone
conversation with the U.S. President.
The service's emphasis on real-time communication - whether it be about
breaking news or chatting with friends about a TV show on air - sets it
apart from rivals such as Facebook.
Now, though, the company must prove to Wall Street it can continue to make
money, even as growth slows after a period of explosive expansion around the
world.
In Thursday's filing, the first public disclosure of financial figures,
Twitter reported that revenue almost tripled to $316.9 million in 2012. In
the first half of 2013, it posted revenue of $253.6 million but had a loss
of $69.3 million.
The numbers were mostly in line with the estimates of outside analysts. The
company began selling advertising in earnest only in 2010, devising a means
for ads to appear in the message streams of users that has proven effective
for both desktop computers and mobile devices.
The losses are "a non-issue," said Brian Wieser, analyst at Pivotal Research
Group. "It would have been a surprise if they had a profit."
In the laundry list of risk factors that's typically appended to all company
IPO filings, Twitter warned it was heavily reliant on advertising revenue.
It said more than 87 percent of its revenue came from advertising in the
first half of 2013.
The prices Twitter can command for ads has actually fallen over the past
five quarters. But the company said that decline was the result of a
conscious effort to rapidly expand its available inventory and change its
algorithms to distribute ads more frequently throughout each day.
Revenue has risen because the strategy attracted more advertisers,
especially small- and medium-sized businesses and international clients, it
said.
Still, the company acknowledged the uncertainty of the volatile and highly
competitive online advertising market.
"Advertisers will not continue to do business with us, or they will reduce
the prices they are willing to pay to advertise with us, if we do not
deliver ads in an effective manner, or if they do not believe that their
investment in advertising with us will generate a competitive return
relative to alternatives, including online, mobile."
CULMINATION
Twitter's target is to raise $1 billion, a figure devised mainly for
registration purposes and that will change as the company embarks on a
roadshow to sell its IPO to investors.
Assuming everything goes smoothly, it could begin trading in November,
though it has not revealed which U.S. exchange -- the New York Stock
Exchange or the Nasdaq -- it has chosen.
Wherever it lists, its debut is likely to cause waves across Wall Street and
the industry, potentially breathing new life into the market for consumer
Internet companies and influencing the value of all social media companies.
Some analysts estimate Twitter could be worth as much as $15 billion. That's
a fraction what Facebook was worth at the time of its debut, but Twitter's
profile is just as high.
Indeed, its more established rival is borrowing a few pages from Twitter's
book, particularly in its approach to mobile advertising. On Thursday it
announced an advertising initiative for its Instagram unit, which competes
most directly with Twitter.
Since Twitter was spun out of a struggling San Francisco startup in 2006, it
has grown to approximately 2,000 employees based in 15 offices around the
world. Along the way, it helped create new ways for advertisers and
corporations to reach audiences, from a "promoted tweets" model now
replicated by Facebook and other Internet platforms, to its "second screen"
approach to encouraging real-time debate around television programs.
More importantly, it has helped redefine the nature of global communications
, linking once lofty and unreachable politicians, celebrities and
journalists with millions around the world.
Its staunch advocacy of free speech around the world - nothing other than
direct personal threats are barred from Twitter - has helped it become an
important avenue through which news and viewpoints are shared, from the
first inklings of the U.S. military assault on Osama bin Laden's compound to
Obama's tweeting "Four more years" when he won re-election.
Twitter's IPO has already drawn multiple comparisons to Facebook. When the
world's largest social network debuted, concerns centered around its
inability to fully earn revenue off mobile users.
Twitter appears to have less of an issue with mobile. About 65 percent of
its revenue derives from mobile users, it said.
The service had 218.3 million monthly active users, on average, in the three
months ended June 30. Three-quarters of its monthly active users are
considered mobile users, it said in the filing.
But Twitter managed only average revenue per user in the second quarter of
2013 of 64 cents compared to Facebook's roughly $1.60, according to Reuters'
calculations.
TAKE HEART
Investors can still muster some cheer from Facebook's revenue and
profitability track. The social networking site pulled in $272 million in
revenue in 2008 but lost $55 million, according to Facebook's S-1 document.
In 2009, it swung to a profit of $262 million after increasing its revenue
nearly three-fold to $777 million. Facebook is now solidly profitable.
Twitter, which went through a period of management turmoil and internal
strife in its early years, did not append a letter from the founders to the
filing, unlike Internet companies such as Facebook and Google before it.
Co-founder and former CEO Evan Williams is Twitter's largest shareholder,
with 12 percent of the shares, while co-founder and chairman Jack Dorsey
owns 4.9 percent. Biz Williams, another co-founder, does not appear on the
list of top shareholders. Current CEO Costolo owns 1.6 percent.
Among institutions, Benchmark and affiliated entities own 6.7 percent of
shares, while Rizvi Traverse Management, Spark Capital, Union Square
Ventures and DST Global are each shareholders of 5 percent or more.
Suhail Rizvi, the little-known head of Rizvi Traverse who has helped himself
and his investors amass stakes in Twitter since 2011, would count among the
largest institutional shareholders, according to sources familiar with its
investments.
Twitter intends to list common stock under the symbol "TWTR." Goldman Sachs,
Morgan Stanley, JPMorgan, BofA Merrill Lynch, Allen & Co, Deutsche Bank
Securities and Code Advisors are managing Twitter's IPO.
(Reporting by San Francisco newsroom, Writing by Edwin Chan, Editing by Phil
Berlowitz, Bob Burgdorfer, Edwin Chan and Kenneth Maxwell)