There’s been a lot of excitement leading up to the biggest Internet IPO since May 2012, when Facebook went public. That day was a nightmare for Zuckerberg and Co., as widespread demand caused glitches that left investors unsure whether or not their transaction went through. Facebook’s stock suffered, but has been skyrocketing for the last 12 months.
Will Twitter follow suit? Nobody knows for sure – but the financial world has been abuzz with speculation ever since Twitter’s IPO filing last month. The SEC filing revealed previously secret information, like exact revenue and growth numbers. Twitter excitement has reached a frenzied level in the last few days. Investor interest has spurred last minute price hikes up to $26 per share and it’s been reported that banks underwriting the IPO have received so much interest they’ve had to close their books.
All this for a company that hasn’t ever turned a profit? I get into the juicy details of Twitter’s highly anticipated IPO below.
What You’ll Learn:
- How Much Twitter Earns Per Tweet
- How Twitter’s value compares to Facebook and LinkedIn
- How Much Co-Founder Jack Dorsey Stands to Gain
- How Twitter’s IPO will be Different than Facebook’s
- Whether or Not to Invest
21 Things to Know as Twitter Goes Public
#1 Revenue is Real and Growing
Twitter revealed that they’ve already earned $422 million in the first nine months of 2013. That’s more than double their revenue from the same period the year before. They’re on pace to make over $600 dollars in 2013.
Twitter’s sales are projected to rise 53% next year to $950 million according to an estimate from the company’s bankers.
#2 But Twitter has Never Seen Profit
In 2011, Twitter lost $128.3 million dollars. In 2012, they cut that number down to $79.4 million. Since it’s inception in 2006, Twitter has lost a whopping $418.6 million.
The good news is that revenue growth is outpacing expenses by a factor of three. According to the Wall Street Journal, between 2010 and 2012 Twitter’s revenue rose 1,021% and expenses rose only 311.5%. Still, they aren’t expected to see a profit until 2015.
#3 Almost All that Money is Coming from Ads
“We generated 85% and 87% of our revenue from advertising in 2012 and the six months ended June 30, 2013, respectively.”
– Twitter, in IPO Filing
As of now, “substantially all” of those advertising dollars come from three sources: promoted tweets, promoted trends, and promoted accounts.
In the future, more of that money may come from inline advertisements. Twitter is also looking to boost their ad revenue in the coming years by becoming more visual and more mobile.
#4 75% of Active Twitter Users are Mobile
According to the IPO, three out of four Twitter accounts are accessed through a smart phone or tablet.
This bodes well for Twitter, given the rise of mobile web. According to Salon, global mobile advertising revenue nearly doubled from $5.3 billion to $8.9 billion from 2011 to 2012.
#5 But Only 65% of Ad Revenue comes from Mobile
Twitter makes less money from their mobile users and that’s something they’ll be looking to improve upon as they make a push for profitability in the coming years.
#6 Twitter has 230 Million Active Monthly Users
If Twitter’s users were a country, it would be the fifth most populous in the entire world – between Indonesia and Brazil.
#7 About 25% of Twitter Users are American
Twitter was founded in San Francisco, but today the vast majority of Twitter users live outside the States. 49.2 million Americans use the service compared to over 169 million internationally.
Of those international users, about 15 million live in the UK. With a population of about 63 million, that means almost one in every four people in the United Kingdom use Twitter. In the US, that figure is lower (about 1/6).
#8 They’re Sending 500,000,000 Tweets Each Day
That amounts to 5,787 tweets per second.
#9 For Every 1000 Tweets, Twitter earns about 75 cents
The numbers are higher in the US, where Twitter gets $2.17 per 1,000 tweets. Internationally, it’s a paltry $0.30 for 1,000 tweets.
This an important lesson in online business. All people are created equal, but some web visitors are worth more advertising dollars than others. Targeting an audience in the United States or other affluent nations will result in higher earnings per visitor.
#10 There are More Tweets than People
Since 2006, there have been over 300 billion tweets. That makes the world population of 7.12 billion people look pretty measly in comparison.
#11 Twitter is Growing Faster Internationally
According to Twitter’s IPO filing, they’re growing at a rate of 35% in the US and 47% globally. This trend is expected to continue, as global markets are significantly less saturated.
#12 Twitter’s Stock Ticker will be TWTR
Simple and to the point, this ticker is reminiscent of the company’s original name: twttr.
#13 Twitter’s IPO Values the Company at $18.3 Billion
That may seem like a lot for a company that’s never turned a profit – and it is. But it’s still about quite a bit less than the value of LinkedIn ($26 Billion) and Facebook ($120 billion).
#14 Demand for Twitter Stock has been High
Initially, Twitter was going to be selling its shares at $17-$20. But after receiving a warm pre-IPO response from investors, that on Monday, November 4th Twitter raised the price to $23-26 per share. Finally, the night before their market debut, Twitter settled on the high-end: $26/share. That means they stand to raise about $2.1 billion from the sale.
#15 Twitter’s Selling Less of Itself than Facebook
Twitter’s IPO is the biggest Internet IPO since Facebook, but it’s still much smaller than it’s social media rival. Facebook sold 421 million shares at $38 each. Twitter is selling only 70 million shares.
Fewer public shares means that the IPO will not raise as much money, but it’s also safer and ensures a higher degree of control for the existing owners.
#16 Former CEO Williams Stands to Gain Over $1 Billion
Here are some notable Twitter stockholders:
- Evan Williams, Founder and Former CEO – holds 12%
- Peter Fenton, Board Member – holds 6.7%
- Jack Dorsey, Founder and Chairman – holds 4.9%
- Richard Costolo, Current CEO – holds 1.6%
Jack Dorsey ownership of Twitter will be worth well over a half billion dollars.
#17 Current CEO Richard Costolo’s Salary is Just $14,000
Don’t shed any tears for the guy: he made $11.5 million in 2012 and his stock is estimated to be worth about $200 million.
#18 Twitter will be Traded on NYSE
But the biggest reason may have to do with Twitter’s biggest competitor. According to Reuters, “many analysts said the trading disruptions that occurred on Facebook’s Nasdaq debut likely played to NYSE’s favor.”
#19 And NYSE isn’t Taking Any Chances
On Saturday, October 26, 2013, NYSE performed an unprecedented system’s check in order to avoid any technical difficulties on opening day. Investors can rest easy knowing that the tests went well.
#20 It has been a Strong Year for IPO’s
Reuters reports that, “Both NYSE and Nasdaq have said 2013 is shaping up to be their best IPO year in more than half a decade.”
#21 It’s a Bull Market
The markets have been soaring in the last year, particularly for online companies. Facebook and LinkedIn have both doubled their share prices in the last year. Bloomberg says, “The climate for Web stocks is particularly hot, with the 77-member Bloomberg U.S. Internet Index trading near the highest valuation relative to the S&P 500 since 2007.”
In other words, the time is right for Twitter’s IPO.
Should You Invest in Twitter?
Anybody who tells you they know what’s going to happen with Twitter is either a liar or a psychic. Of course, that doesn’t stop analysts from chiming in. Predictions run the gamut, from the dire…1
“When you look at valuations and look at the lack of earnings and revenue, it seems to me much like the dot-com bubble. This market looks a little frothy and Twitter is the personification of a risky trade.”
– Matt McCormick, to Bloomberg
…to the exuberant…
“Our own view on management is very favorable given our observations of decisions they have made to date. We have a high degree of confidence that Twitter can continue producing sales growth for many quarters to come.”
– Matt Weiler, to Wall Street Journal
…and everything in between.
Ultimately, it comes down to whether or not you believe in Twitter. It’s valuation at over $10 Billion is based on assumptions that it will continue to grow and increase revenue for decades to come.
I believe in Twitter and think that it’s a unique platform that’s well-managed and well-positioned to mature along with mobile. But I’m a low-risk investor and no matter how you slice it, Twitter is a high-risk stock. For that reason, I won’t be buying Twitter stock any time soon. That said, I bet Twitter’s opening day will go off without a hitch and its price will finish higher than $30.
A Message from Twitter to Investors
Included in the filing was this message for investors from founder Jack Dorsey:
Twitter was born on March 21, 2006, with just 24 characters.
We started with a simple idea: share what you’re doing, 140 characters at a time. People took that idea and strengthened it by using @names to have public conversations, #hashtags to organize movements, and Retweets to spread news around the world. Twitter represents a service shaped by the people, for the people.
The mission we serve as Twitter, Inc. is to give 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.
Thank you for supporting us through your Tweets, your business, and now, your potential ownership of this service we continue to build with you.
Jack’s also the founder of Square and a pretty interesting guy. If you want to learn more from the man behind Twitter, I’ve compiled 9 business lessons from his amazing life.