Twitter Filing Opens Books on High-Flier
BY VINDU GOEL AND MICHAEL J. DE LA MERCED
Peter DaSilva for The New York TimesTwitter employees at the company’s San Francisco headquarters last year.
Updated, 10 p.m. | SAN FRANCISCO — If Lady Gaga were to send a message to her 40 million followers on Twitter summarizing the company’s debut on Wall Street, it might very well say: “Twitter IPO. Mobile. Born This Way.”
Twitter, which was built on messages so short they could be texted on a cellphone, revealed on Thursday just how central smartphones and tablets are to its business — underscoring the technology industry’s rapid transition to a mobile world.
But despite the evidence that it is increasing its revenue from mobile advertising, the company also disclosed that it has not yet turned a profit, and has been steadily losing money, and that its user growth has been slowing significantly since the end of last year.
Last month, the company announced that it would go public but had filed confidential papers. On Thursday, it made its prospectus public, providing a first glimpse at its financial health.
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The Twitter initial public offering — the most hotly anticipated stock sale since Facebook went public last year — will make early employees and investors in the company very rich.
Evan Williams, one of the company’s founders, owns 12 percent of the company, a stake valued at $1.2 billion in August, when the company last priced its employee stock options. Jack Dorsey, another co-founder, owns stock worth about $483 million.
The investment firms Benchmark Capital, Union Square Ventures and Spark Capital are also large stockholders, as is DST Global, a Russian firm that made a fortune on its early investments in Facebook.
Twitter’s impending public offering seizes on the continued growth of social networking and mobile devices, two trends the company has ridden to enormous growth. Founded seven years ago as a side project in a floundering start-up firm, it is now one of the world’s biggest public forums, ranking alongside Facebook. Aspects of the service, like hashtags denoting specific discussion topics, have infiltrated popular culture.
The company has turned its deceptively simple product, messages no longer than 140 characters, into a global phenomenon. It has found a way to make money through advertising, notably through so-called sponsored tweets that resemble regular users’ posts.
And much of that advertising revenue is on mobile.
In its filing, Twitter said that 75 percent of its users entered the service through mobile devices during the second quarter and that 65 percent of its revenue came from mobile ads.
That is sharply higher than the numbers of Twitter’s much bigger rival, Facebook, which had virtually no revenue from mobile when it went public last year — and struggled to prove to investors that it could be a truly mobile company.
Twitter earned far more of its advertising revenue from American users than from foreign users. Zachary Reiss-Davis, an analyst at Forrester, said the social network would eventually need to show how it could evolve its advertising efforts and make its offerings more sophisticated.
“Twitter has done a good job of growing its international user base, but now it has to work with marketers to create advertising experiences that work for those international users and for marketers,” he said.
Twitter’s prospectus also offered a look at how it has grown; it reported that it had 218 million average monthly active users in the second quarter, up 44 percent from the same period a year ago. But at the end of December, it said it had about 200 million users, suggesting that growth was slowing.
Its revenue for the first half of this year was $253.6 million, more than double the amount it brought in during the same period last year.
Yet Twitter has been steadily losing money, reporting a net loss of $79 million last year and $69 million for the first six months of 2013, although some analysts said such losses were not unreasonable for a young, fast-growing company
Twitter has not set a price for its offering. When it last set an internal price for employees, in August, it valued the stock at $20.62 a share, suggesting a value at that time of $9.7 billion. That figure is equal to 22 times the sales that the company posted in the 12 months through June. Such a valuation is high, even for a young technology company, analysts say.
But since Twitter has shown growth in advertising sales, investors will value the stock based on their expectations of future revenue and profit.
Facebook’s stock market value is 12 times the sales that analysts expect the company to achieve next year. Some expect Twitter to reach $1 billion in sales next year. If the company were to trade at 12 times that estimate, it would be worth $12 billion. Some analysts will probably argue that Twitter is growing faster and therefore deserves to trade at a higher multiple of sales, which could push up Twitter’s stock market value.
In a seven-sentence letter to prospective investors, Twitter characterized itself as 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,” the company said.
The social network disclosed that it planned to use the ticker symbol TWTR, but it did not specify a stock exchange. It also listed a $1 billion fund-raising target, a pro forma number meant to calculate listing fees.
With the filing late on Thursday, Twitter now has to wait at least three weeks until it begins a publicity campaign to potential investors across the country, in what is expected to be a series of standing-room-only meetings. The company will field questions from investors and work with its investment bankers to set a price based on investor demand.
“We’re still missing other pieces of the puzzle to determining how attractive or unattractive this might be,” said Richard Greenfield, an analyst with BTIG Research.
The company hopes to complete its offering by Thanksgiving. But if the markets prove unwelcoming — a possibility if the government shutdown goes on for weeks — the company is likely to postpone the offering until next year.
Deal makers hope Twitter’s offering will help lead a revival in technology public listings, after the market underperformed for much of 2013. Technology companies have accounted for just 19 percent of initial offerings this year, the smallest share since 2008, according to the research firm Renaissance Capital.
Some of that decline took place after Facebook’s botched initial public offering last year, as well as periods of market turmoil as recently as this summer.
But analysts say investors are eager to take a piece of technology start-ups, especially fast-growing companies that appear poised to continue expanding — and someday make healthy profit margins. Despite a flawed debut, Facebook’s shares now trade 29 percent higher than their offering price, as the company demonstrates strong ad growth.
Potential buyers aren’t the only ones eager for a piece of Twitter’s offering. Wall Street banks have battled for months to lead the stock sale. Goldman Sachs won that fight and is serving as lead underwriter along with Morgan Stanley and JPMorgan Chase.
Vindu Goel reported from San Francisco and Michael J. de la Merced from New York. Nick Bilton and Nicole Perlroth contributed reporting from San Francisco, Peter Eavis from New York and Nick Wingfield from Seattle.
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