This is the week. The highly anticipated initial public offering for Twitter is likely to sell this week and the media was keen to advance the story. There were a couple of pieces about Twitter’s ability to sell more ads abroad.
Here’s the Wall Street Journal’s story:
Three-fourths of Twitter Inc. users are overseas. But only one-fourth of its revenue comes from non-U.S. advertisers.
To Twitter, that is a “substantial opportunity” as it readies to go public as soon as this week. But it will also be a big challenge to convert a global following into sales and profits.
Twitter’s international operations were a major topic of questions during a pre-IPO “roadshow” meeting with investors last Wednesday at the Mandarin Oriental hotel in New York, according to an investment manager who attended.
Analysts say the messaging service must mind cultural differences while promoting itself abroad. In Japan, for example, users tend to keep their accounts private and circle of followers small, while Brazilian users are public and liberally follow one another. It also must compete with popular local rivals, such as Sina Corp.’s Weibo in China, Japan’s Line and South Korea’s Kakao Inc.
Until recently, Twitter’s overseas growth was more spontaneous than by design. It attracted large numbers of users around events such as the Arab Spring and 2011 Japan earthquake. But many users drifted away when the news cooled, and Twitter was more focused on building out its U.S. business.
Now, Twitter is working on bringing users and advertisers outside the U.S. on board. In Korea, where it is introduced ads last Friday, it is trying to forge relationships with TV networks and advertising agencies.
The New York Times version of the story started with more of the hard numbers at the top:
The problem is, Twitter is still figuring out how to make money from those users abroad. The company received 26 percent of its total revenue from markets outside the United States in the third quarter, compared with around 17 percent at the end of last year, according to regulatory filings.
Turning that global popularity into international ad sales remains tricky for the company, which is based in San Francisco, as it nears an initial public offering of stock. Many overseas brands are more skeptical of the impact of social media advertising than their American counterparts, while Twitter faces stiff competition from local social media rivals like Line of Japan, which already has hundreds of millions of registered users across Asia.
Twitter also has yet to expand its foothold in many international markets. That includes the global debut of its self-service advertising system, begun in the United States in late 2011, which allows brands to buy ads without talking directly to a sales representative. The company plans to bring that system to a number of global markets, according to regulatory filings.
“Twitter is not quite there yet,” said Oliver Eriksson, head of strategy at the digital ad agency VML in London, whose clients include Microsoft and Gatorade. He said the company still had to prove to potential clients that its advertising platform could reach international consumers. “They need to do it quickly to give brands confidence that Twitter can add value,” Mr. Eriksson said.
That skepticism is reflected in Twitter’s ad sales outside the United States.
While Twitter’s highly publicized initial public offering is estimated to value the company at roughly $12 billion, it still remains a relatively small player in the world of digital advertising. Twitter is expected to grab just 0.5 percent, or $580 million, of the total spending on worldwide digital advertising this year, according to the research firm eMarketer. That compares to $6.4 billion that will probably be spent on its archrival Facebook in 2013.
For international brands, Twitter’s relatively small scale could prove a deterrent. Many companies, like Nestlé and Unilever, are looking to increase their advertising spending within social media as more consumers spend increasingly more time online. But analysts say that Twitter’s relatively small footprint makes it a harder sell.
Reuters reported that investors are watching to see if Twitter’s IPO takes the same course as Facebook’s:
The market will be on alert to see if Twitter follows the fate of last year’s botched Facebook Inc IPO: the social networking company’s stock hit the market in May 2012 and was plagued by allocation problems, trading glitches and a selloff. The shares did not recover the IPO price until a year later.
Views have been mixed on what investing strategy to take for Twitter’s IPO. According to a Reuters survey of 29 broker-dealers and independent advisers, 23 said they are not recommending Twitter shares. Only one said he would recommend it – and only to certain clients. Five others said they would wait to snap up the stock if it plunges after it begins to trade.
But while retail interest might be low, tech industry analysts say there is expected to be a good appetite for Twitter’s stock from institutional investors at the current valuation.
On Friday, Morningstar joined three other brokerages in setting price targets for Twitter Inc well above its IPO price range, suggesting the stock has room to rise at least 30 percent.
That’s a good sign for early investors, if you can get the stock, which USA Today reports isn’t likely:
Relatively few investors actually get allocated stock at the IPO price, while the rest are left to buy at whatever the market commands, and history has shown that highly hyped stocks (like Twitter) often command enormous prices relative to actual earnings.
Data compiled by Forbes shows that of all the IPOs priced since Sept. 12, 19 have returned over 20%, averaging a 69% gain over just a few weeks. On average, these stocks opened for trading on the day of their IPO at a price 49% higher than the IPO price and only experienced 9% further upside on average the rest of that trading session.
IPOs make great stories, especially since they offer the first look at previously undisclosed information. They don’t however typically make many regular people rich. But if Twitter can capitalize on it’s opportunities in markets outside the U.S., then it could make buy-and-hold investors some money in the long-term.