Twitter IPO Update

As Twitter announced its IPO plans over a tweet last month, the details remained hidden thanks to the provisions of the JOBS Act, which allows for confidential initial filings with the SEC. But, yesterday we had more information coming from the company about the upcoming public offering.
While Twitter reported revenues of $316.9 million in 2012 (85% accounted for by advertising), its H1 2013 revenues have already reached 253.6 million. Keeping the percentage for advertisements constant, we think the prediction from e-marketers (see chart below) should be an indicator of the next few years. Twitter’s ad revenues should cross the $1 billion mark in 2015.

Source emarketer
Source emarketer

The growth of revenues from $28 million in 2010 to $317 million in 2012 is phenomenal. However, the company also reported a net loss of $69.3 million in H1. This, of course, should be expected. It is a high growth firm, and current EPS does not provide any guidance to the future.

We can see the enormous growth potential for Twitter, but its revenue model is yet to mature. Even Facebook (NASDAQ: FB), which received a lot of investor concern about its revenue streams, earned $1.60 per user in Q2 2013, compared to a 64c per user for Twitter. But FB is an more mature firm with more users. Earnings for social networking companies, even per user revenues, come primarily from the size of its registered user base. In that metric, Twitter is not even at 50% of FB, and is now at the level of Google Plus (detailed graphic below).

Source DMR, Facebook, Google, Renren, VK
Source DMR, Facebook, Google, Renren, VK

According the filings, Twitter plans to trade under the ticket TWTR and raise $1 billion in the current IPO. That number might change according to interest during its roadshow – but Twitter surely hopes that the drama around Facebook’s IPO will not be repeated.

Another statistic that denotes the change in internet access and is a net positive for Twitter is that 75% of its users access it from mobile devices, while 65% of its revenues came from mobile. With its limited character count, Twitter is extremely mobile friendly and a high percentage of mobile revenue bodes well for the firm and for potential shareholders.

Goldman Sachs (NYSE: GS) is the lead book runner with Morgan Stanley (NYSE: MS), JP Morgan (NYSE: JPM), Bank of America Merrill Lynch (NYSE: BAC), Deutsche Bank and CODE Advisors.

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