The Wall Street investors are enjoying an early Thanksgiving as Twitter revealed its IPO on Thursday with the intent to raise $1 billion from the initial sales salvo. The frenzy with which a number of financial analysts went through the 180 page S-1 filing was vicious and exhilarating. The concerns about the numbers would show that Twitter's IPO is priced reasonably, as compared to the other social media network —-Facebook (FB). The $10 billion starting value is expected to grow within the range of $12 billion to $15 billion when public trading starts.
The IPO strategy of Twitter is very much unlike Facebook, which infamously offered a high IPO until it flopped. Twitter’s initial offering equates to only a small portion of the company – meantime. The social media site boasts of around 200 million users who actively send approximately 500 million tweets every day. This was what was stated in the prospectus that was filed with the Securities and Exchange Commission (SEC) by Twitter. For the 2nd quarter ending June, Twitter users updated their timelines 170 billion times. It is ironic to note that there are only 7 billion people on the entire planet!
Twitter's rank and file, numbering around 1,800 employees are bound to get very wealthy. Evan William’s co-founder, Jack Dorsey will hold 12 percent or a stake worth $470 million. The current company CEO, Dick Costolo, receives 1.6 percent or a paltry stake worth $160 million. Twitter’s active users increase 44 percent as of the 2nd quarter compared to the previous year— or approximately 218.3 million active regular users. However, the company expects that the rate of growth will taper over time as the user-based increases, which was stated in their recent announcement.
Twitter’s earning was up 198 percent to around $317 million last year, but the company loses a lot of money, too. The company is expected to lose more than $140 million this year; with losses for 2011 amounting to $128.3 million. Nonetheless, the pace with which the losses are increasing is slower than its rate of increase in earnings. The company has earmarked large sums of money to expand its service coverage fund. It plans to continue along this route after it has raised new money from the IPO. Obviously, that is a step towards the right direction. Twitter entered into a buyout arrangement with MoPub, a mobile ad company. What changed hands, are $350 million worth in stocks—- the company’s most expensive acquisition in recent years.
In a backgrounder that was attached to the documents filed with the SEC, Twitter stated, “ The company was created 21 March 2006, using a mere 24 characters. The ultimate goals was —– to share whatever it is that you do, by sending just 140 characters of tweets.” It got the public’s eye and strengthened it by adding @ to names for public conversations, hashtags # to organize concepts, and re-tweets to spread news in cyberspace.
Twitter’s corporate mission is to enable everyone to create and share information instantly and without barriers. The business model would follow this mission of improving the free flow of global conversation. The company’s stock market symbol is TWTR. Twitter's IPO is one of the most anticipated technology offerings since the flawed IPO of Facebook in May 2012. That IPO sale was a disaster and the shares only recovered this September, to equal the same price level as that of the initial sale.
The ultimate challenge that faces Twitter at present, is of balancing off the need for advertising revenues and that of their end users, as pointed out by Zachary Reiss-Davis, Forrester analyst. The main source of revenues is advertising which accounts to around 87 percent of total earnings. Twitter gets $2.17 per 1,000 timeline updates for US residents, and $0.30 for non-US users. It is expected that Twitter is going to get much more from each of these groups when it goes public.
Much of the details are now under wrapped as regards IPO documents that has been filed with the SEC under the Jumpstart Our Business Startups Act (JOBS). Under this act, vital documents would need to go public three weeks before the company starts meeting prospective investors. Taking into account Twitter’s date of filing, would suggest that trading would start mid November.
With the government shutdown, the SEC has to approve the IPO filing since it has only enough funding for the next two weeks. Twitter’s IPO may not be delayed since the date of filing was done before the government shutdown.